UNIVERSITY  OF  CALIFORNIA 
AT   LOS  ANGELES 


THE 

ARTHUR  YOUNG 

ACCOUNTING 

COLLECTION 


Graduate  School  of 
Business  Administration 

Library  of  the 

University  of  California 

Los  Angeles 


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a  y 


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r»-M«a — 4._  pi 


Library 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/mineaccountingcoOOmcgriala 


MINE  ACCOUNTING 

AND 

COST  PRINCIPLES 


MINE  ACCOUNTING 


AND 


COST  PEINCIPLES 


BY 

T.  O.  McGRATH 

AUDITOR   OF   THE   SHATTUCX-ARIZONA    COPPEH   COMPANY 


First  Edition 
Fifth  Impression 


McGRAW-HILL  BOOK  COMPANY,  Inc. 

NEW     YORK     AND     LONDON 
1921 


Copyright,  1921,  by  the 
McGraw-Hill  Book  Company,  Inc. 


PRINTED  IN  THE    UNITED   STATES    OP  AMERICA 


THE    MAPLE    PRESS    COMPANY,    YORK,    PA. 


1 

Library 

HF 

5686 

PREFACE 

mui 

^  '-5 

—    c 

The  present  tax  laws  of  most  of  the  States  and  of  the  Federal  Govern- 

j    <  ment  require  that  accurate  records  be  kept  and  that  complete  reports  be 

"  made  to  the  Government  of  the  results  of  each  year's  business.     The  em- 

£  ployes  of  large  industrial  units  are  demanding  that  they  be  informed  of 

3  the  results  of  their  labor,  and  be  given  a  share  either  of  the  profits  of 

the  business  or  in  the  savings  resulting  from  their  increased  efficiency 

or  effort.     The  general  public  is  insisting  that,  being  the  consumer  of  all 

products,  the  costs  and  profits  of  industry  shall  be  accurately  determined 

and  made  public.     As  the  result  of  the  gradual  depletion  of  our  richest 

5  deposits   of   minerals   the  mining  industry  is  operating  on  a  narrower 

n  margin  of  profit  than  at  any  time  in  its  history,  and  must  know  its  costs 

gfrom  month  to  month  to  protect  against  loss.     Also,  it  is  now  recognized 

"^that  a  mining  enterprise  may  be  properly  equipped  with  the  best  of 

mechanical  appliances  and  have  an  organization  of  high  ability  and 

employes   embued    with   the    spirit   of    co-operation,    nevertheless   the 

business  cannot  be  intelligently  managed  without  a  knowledge  of  the 

results  of  operation  and  the  condition  of  the  business  for  each  operating 

_,      period,  which  information  can  be  obtained  only  by  proper  accounting  and 

3  o  costing. 

;  o  .  ... 

Therefore,  each  unit  of  the  mining  industry  feels  the  need  not  only 

■j^of  accurately  determining  its  costs  and  profits  so  as  to  have  an  intelligent 

guide  to  operations,  and  to  meet  the  requirements  of  the  Government, 

the  public  and  of  its  employes,  but  to  compile  the  accounting  and  costing 

data  in  as  uniform  a  manner  as  possible  so  as  to  obtain  the  benefit  of 

the  operating  data  compiled  by  the  other  units  of  the  industry. 

To  meet  this  need  there  is  an  urgent  demand  for  a  complete  pre- 
sentation of  accounting  and  costing  of  mining  operations  compiled  on  a 
scientific  basis  and  in  a  uniform  manner. 

In  spite  of  this  demand,  however,  at  the  present  time  the  published 
literature  is  inadequate  and  lacking  in  uniformity  and  there  is  prac- 
tically no  agreement  nor  any  great  degree  of  efficiency  in  the  account- 
ing and  costing  practice  of  mines.  The  only  explanation  of  the  present 
status  of  mine  accounting  is  that  the  great  diversity  in  methods  of 
mining,  treatment  and  disposal  of  mine  products,  as  well  as  in  the 
character  of  the  mines  themselves  limits  the  treatment  of  the  subject 
to  a  description  of  individual  systems  and  accounts  unless  the  fundamental 
principles  underlying  all  mining  operations  are  recognized. 

Up  to  date  there  have  been  two  principal  methods  of  illustrating 
accounting  procedure:  one,  by  means  of  books  and  records  used  in  the 
business,  and  the  other  by  means  of  accounts  and  statements  used  in 

V 

342595 


VI  PREFACE 

the  business.  When  the  first  method  is  used  there  is  explained  how  the 
books  are  kept  in  order  to  get  a  Balance  Sheet  and  a  Profit  and  Loss, 
or  Income  Statement.  When  the  second  method  is  used  the  balance 
sheet  and  the  profit  and  loss  account  are  taken  as  the  basis  and  there 
is  explained  what  should  enter  into  these  and  subsidiary  accounts,  and 
what  records  should  be  kept  to  support  the  balance  sheet  and  profit  and 
loss  or  income  account. 

While  it  is  true  that  the  two  principal  objects  of  accounting  are,  to 
obtain  a  balance  sheet  showing  the  condition  of  the  business  at  the  end 
of  the  operating  period,  and,  a  profit  and  loss  statement  showing  the 
results  of  the  period's  operation,  nevertheless  these  two  statements  are 
only  the  results  of  the  accounting  and  are  not  the  basis  of  the  accounting. 
Neither  are  the  books  the  basis  of  the  accounting  as  they  are  only  part 
of  the  accounting  machinery.  While  the  accounts  are  the  basis  of  the 
accounting  they  will  show  the  true  condition  of  the  business  only  when 
they  have  been  created  in  harmony  with  the  principles  underlying  the 
business. 

In  this  presentation  of  General  and  Cost  Accounting,  a  new  method  has 
been  used:  First,  in  order  to  determine  the  basis  of  the  accounting,  the 
business  has  been  analyzed  and  a  statement  of  the  principles  of  the 
mining  business  has  been  drawn;  second,  charts  of  accounts  have  been 
created  that  will  correctly  reflect  these  principles  upon  the  ledger;  third, 
schedules  are  drawn  showing  the  charges  and  credits  to  these  accounts  to 
insure  uniformity  and  correctness;  fourth,  books  and  records  are  created 
that  will  allow  of  the  compiling  of  the  operating  and  business  data  so  as 
to  give  a  balance  sheet  showing  the  true  condition  of  the  business  and  an 
income  or  profit  and  loss  statement  that  will  give  the  results  of  the 
period's  operation.  The  accounting  procedure  is  then  handled  in  the 
order  in  which  the  business  is  done. 

It  is  believed  that  the  correct  basis  of  accounting  for  mining  has 
been  presented  herein  and  that  this  basis  will  allow  of  uniformity  in 
accounting  and  costing  procedure  for  all  mines  regardless  of  operating 
methods  or  the  character  of  the  ores  treated.  To  achieve  such  uniformity 
would  result  in  great  benefit  to  the  mining  industry  and  in  the  directors, 
managers  and  department  heads  comprehending  the  business  from  an 
accounting  standpoint  as  well  as  from  the  angle  of  operations. 

The  object  has  not  been  to  endeavor  to  exhaust  the  subject  of  account- 
ing and  costing  as  applied  to  mining,  nor  to  present  the  different  systems 
and  methods  now  in  use  by  mines,  mills  and  smelters,  but  simply  to 
state  the  principles  and  to  present  sufficient  forms,  charts,  records  and 
procedure  to  illustrate  how  the  principles  are  applied  in  actual  practice. 
Also  the  subject  has  been  worked  out  in  the  form  of  a  manual  and 
each  sub-division  is  taken  in  logical  order  which  should  make  the  book 
of  more  value  to  those  who  wish  practical  working  knowledge  of 
mine  accounting. 


TABLE  OF  CONTENTS 

PAGfc 

Preface v 

SECTION  1 

Promotion,  Development  and  Equipment 

CHAPTER  I 

Introduction 

The  Business  of  Mining 1 

Relationship  of  Accounting  to  the  Business 2 

Organization  of  the  Business 4 

Definition  of  Accounting  Terms.    . 5 

Need  for  Better  Understanding  of  Accounting 5 

CHAPTER  II 

General  Accounting 

Purpose  of  Accounting 7 

Organization  of  Accounting  Department 8 

Principles  of  General  Accounting 10 

Working  Factors 11 

Chart  of  Accounts 11 

Schedules  of  Charges  and  Credits 12 

Differences  in  Mining  Methods,  Etc 12 

Forms  and  Procedure 13 

Accounting  Divisions 13 

Stages  of  Operation 14 

CHAPTER  III 

Capital,  Promotion  and  Organization 

Capital  for  Prospecting 16 

Determining  the  Capitalization 16 

Organizing  the  Business 17 

Capital  Receipts 17 

Capital  Expense 22 

Statement  of  Condition  of  Business 23 

CHAPTER  IV 

Capital,  Development  and  Equipment 

Operating  Organization 25 

Operating  Accounting  Department 25 

Operating  Accounting 26 

Books  of  Record 26 

General  Accounts 26 

vii 


viii  CONTENTS 

Page 

Operating  Disbursements  and  Receipts 27 

Net  Mine    Development 28 

Depreciation  of  Development  Equipment 29 

Closing  Mine  Development  Account 29 

Administrative  Accounting 30 

Administrative  Mine  Development 31 

Crediting  Operations  with  Mine  Development 31 

The  Development  Stage 32 

Development  Production  Accounting 33 

CHAPTER  V 

Capital,  Reorganization  and  Development 

Reorganization  of  Development  Company 34 

Determining  the  Capitalization 34 

Reorganization    Accounting 35 

SECTION  2 
Operating  Production 

CHAPTER  VI 
Operating  General  Accounting 

Chart  of  Operating  Accounts 42 

Basis  of  Accounting 44 

Operating  Production  Accounting 44 

Divisions  of  Production  Accounting 45 

Operating  Capital 46 

Statement  at  Beginning  of  Production 46 

Operating  Exploration  and  Development 47 

Capital  Disbursements  During  Production 48 

Chart  of  Operating  Principles 48 

Working  Factors 48 

CHAPTER  VII 

Operating  Disbursements 

Actual  Disbursements — Direct 52 

Labor 52 

Employment  of  Labor 52 

Labor  Reports 53 

Check  of  Daily  Labor  Reports 54 

Record  of  Labor  Reports 54 

Accidents 56 

Orders  and  Deductions 57 

Balancing  Pay  Rolls 57 

Time  Statements  and  Payments 57 

Labor  Disbursement  Account 57 

Bills  Audited 60 

Invoices  and  Freight  Bills 60 

Cash  Discounts  and  Credits 61 


CONTENTS  IX 

Page 

Bills  of  Expense 61 

Check  of  Invoices,  Etc 61 

Vouchers 61 

Bills  Audited  Record 61 

Check  of  Bills  Audited  Record 63 

Voucher  Cheque 63 

Bills  Audited  Disbursement  Account •.    .  63 

Supplies  Issued 63 

Disbursements  of  Supplies 64 

Report  of  Supplies  Issued 64 

Record  of  Supplies  Issued 65 

Handling 66 

Check  of  Supplies  Issued 67 

Supplies  Issued  Disbursement  Account 67 

Summary  of  Direct  Disbursements 68 

Actual  Disbursements — Indirect 68 

Shops 68 

Power 69 

Summary  of  Actual  Disbursements 70 

Accrued  and  Deferred  Disbursements 70 

Accrued  Disbursements 70 

Deferred  Disbursements 71 

Depreciation  of  Equipment 72 

Depletion  of  Mines 72 

Summary  of  Disbursements 74 

CHAPTER  VIII 

Distribution  of  Disbursement  Charges 

Distribution  of  Direct  Disbursements 77 

Labor 77 

Supplies  Issued 77 

Bills  Audited 78 

Distribution  of  Indirect  Disbursements 78 

Shops 79 

Power 79 

Distribution  of  Accrued  Disbursements 79 

Distribution  of  Prepaid  Expense 80 

Repairs 80 

Replacements 80 

Unexpired  Insurance 81 

Suspense 81 

Distribution  of  Deferred  Disbursements 81 

Miscellaneous  Credits  and  Charges 82 

Summary  of  Disbursement  Charges 82 

CHAPTER  IX 
Production 

Production  Accounts 84 

Inventory  of  Production 84 

Production  Methods 87 


X  CONTENTS 

Page 

Mine  Production 87 

Report  of  Mine  Production 88 

Record  of  Ores  Loaded  and  Shipped 89 

Contents  of  Ores  Sampled  for  Treatment 91 

Record  of  Smelter  Settlements  for  Ore  Sampled 93 

Production  Record  of  By-products 96 

Production  of  Secondary  Products 97 

Mill  Production 99 

Smelter  Production 99 

Refinery  Production 101 

CHAPTER  X 

Sales 

Sales  of  Principal  Production 103 

Sales  of  Secondary  Production 106 

Sales  of  By-products 107 

Sales  of  Operating  Supplies,  Etc 107 

Undelivered  Sold  Production 107 


CHAPTER  XI 

Receipts 

Delivery  of  Sales  of  Principal  Production 110 

Reserve  for  Loss  on  Sales Ill 

Overs  and  Shorts  on  Deliveries Ill 

Delivery  of  Sales  of  By-products 112 

Delivery  of  Secondary  Products 112 

Miscellaneous  Receipts 113 

CHAPTER  XII 

Operating  Cash 

Cash  Receipts 115 

Cash  Received  from  Treasurer 118 

Cash  Received  from  Sales  of  Principal  Product 118 

Cash  Received  from  Sales  of  Other  Products 121 

Cash  Received  from  Sales  of  By-products 123 

Cash  Received  from  Sales  of  Secondary  Products 123 

Cash  Received  from  Accounts  Receivable,  Etc 123 

Postings  of  Cash  Book  Debits 123 

Cash  Disbursements 124 

Cash  Disbursements  for  Labor 124 

Cash  Disbursements  for  Bills  Audited 125 

Remittances  to  Treasurer 125 

Postings  of  Cash  Book  Credits 126 

Petty  Cash  Account 126 

Reconcilement  of  Bank  and  Cash  Account 128 

Unpaid  Cheques 128 


CONTENTS  xi 
CHAPTER  XIII 

Operating  Statement  &  Schedules 

Page 

Trial  Balance 129 

Operating  Statement  and  Schedules 129 

CHAPTER  XIV 

Operating  Profit  and  Loss  and  Closing  Entries 

Statement  of  Actual  Operating  Profit  or  Loss 138 

Comparative  Statement  of  Operating  Profit  &  Loss 139 

Adjusting  Inventory  to  the  Books 141 

Miscellaneous  Adjustments 143 

Adjustment  of  Depreciation  Charges 145 

Summarizing  the  Revenue  Accounts 143 

Summarizing  the  Expense  Accounts 144 

Statement  of  Accounts  for  Treasurer 144 

Determining  the  Yearly  Profit  or  Loss 144 

Closing  the  Treasurer's  Accounts 146 

Combined  Operating  Profit  &  Loss 147 

Ruling  the  Accounts 147 

SECTION  3 

Administrative  Accounting 

CHAPTER  XV 

Administrative  Production  Accounting 

Chart  of  Administrative  Principles 153 

Working  Factors 153 

Statement  at  Beginning  of  the  Year 154 

CHAPTER  XVI 

Administrative  Disbursements 

Actual  or  Current  Disbursements 155 

Accrued  Disbursements 155 

Federal  Taxes 155 

Other  Accrued  Disbursements 157 

Deferred  Disbursements 158 

Appreciation  of  Property  Investment 158 

Distribution  of  Disbursements 158 

Distribution  of  Current  Disbursements 159 

Distribution  of  Accrued  Disbursements 159 

Distribution  of  Deferred  Disbursements 160 

Operating  Accounts 161 

Distribution  of  Prepaid  Disbursements 161 


xii  CONTENTS 

CHAPTER  XVII 

Administrative  Receipts  and  Cash 

Page 

Administrative  Receipts » 162 

Receipts  on  an  Accrued  Basis 162 

Receipts  on  a  Cash  Basis 162 

Administrative  Cash 162 

Cash  Receipts 163 

Cash  Received  from  Sale  of  Stock,  etc 163 

Cash  Received  from  Notes  Issued 163 

Cash  Received  from  Sales  of  Product 163 

Postings  from  Cash  Book  Debits 164 

Cash  Disbursements 165 

Cash  Disbursements  for  Bills  Audited 165 

Cash  Disbursements  for  Dividends 165 

Postings  of  Cash  Book  Credits 166 

Reconcilement  of  Cash  Account 166 

Notes  Receivable 167 

CHAPTER  XVIII 

Dividends 

Cash  Dividends  from  Earnings 168 

Stock  Dividends  from  Earnings 169 

Dividends  from  Assets 170 

Capital  Dividends 170 

Reducing  the  Depletion  Reserves 171 

CHAPTER  XIX 

Administrative  Balance  Sheet 

Administrative  Trial  Balance 172 

Closing  the  Operating  Account 173 

Realized  Appreciation 174 

Administrative  Balance  Sheet  Before  Closing 174 

CHAPTER  XX 

Yearly  Income,  or  Profit  and  Loss  and  Surplus 

Profit  and  Loss 177 

Items  that  Should  Appear  on  Profit  and  Loss  Account 178 

Determining  the  Yearly  Profit  and  Loss 178 

Surplus 179 

Adjusting  the  Surplus  Account 180 

Surplus  Account  for  the  Year 180 

CHAPTER  XXI 

Balance  Sheet 

Grouping  of  Balance  Sheet  Items 181 

Arrangement  of  Groups  and  Items ,    .    .    .   181 


CONTENTS  xiii 

Page 

Balance  Sheet  Statement 182 

Balance  Sheet  Schedules 183 

Invested  Capital 183 

Reopening  the  Connecting  Accounts 184 

Closing  the  Operating  Accounts 185 

Accounting  for  Holding  Companies 185 

Liquidation  of  the  Business 186 


SECTION  4 
CHAPTER  XXII 

Cost  Accounting 

Method  of  Cost  Determination 192 

Cost  Principles 193 

Units  of  Organization 193 

Divisions 193 

Departments,  Etc 194 

Expense 195 

Schedule  of  Charges  and  Credits 195 

Expense  Distribution  of  Labor 195 

Check  of  Labor  Distribution 196 

Summary  of  Labor  Distribution 198 

Posting  the  Labor  Distributions 198 

Expense  Distribution  of  Supplies 202 

Check  of  Supply  Distributions 203 

Summary  of  Supply  Distributions 203 

Postings  of  Supply  Distributions 203 

Expense  Distribution  of  Bills  Audited 203 

Expense  Distribution  of  Shops 204 

Expense  Distribution  of  Repairs 205 

Expense  Distribution  of  Replacements 206 

Expense  Distribution  of  Power 207 

Boilers 207 

Air  Compressors 207 

Air  Drills 207 

Electric  Plant 207 

Summary  of  Power  Distribution 207 

Distribution  of  Suspense  Items,  Etc 208 

Determining  the  Development  Overhead 208 

Distributing  the  Overhead  Expense 209 

Cost  Factors 210 

Production  Factors 210 

Compiling  the  Tonnage  Factors 210 

Summary  of  Tonnage  Factors 211 

Summary  of  Final  Production  Factors 211 

Operating  Factors 213 

Time 214 


Xiv  CONTENTS 

CHAPTER  XXIII 
Compiling  the  Costs 

Page 

Kinds  of  Costs 215 

Production  Costs 215 

Total  and  Net  Production  Costs 215 

Division  Production  Costs 219 

Administrative  Production  Costs 219 

Operating  Production  Costs 220 

Departmental  Production  Costs 223 

Departmental  Unit  Costs 224 

Detail  Unit  Costs 227 

Daily  and  Weekly  Costs 229 

Comparative  Costs 234 

Shops  and  Power  Costs 237 

Shops  Costs 238 

Power  Costs 240 

Boiler  Horse  Power  Costs 240 

Compressor  Costs 241 

Air  Drill  Operating  Costs 241 

Air  Drill  Repair  Costs 241 

Cost  of  Prepaid  Expense 242 

Asset  Costs 244 

Construction  and  Equipment  Costs 244 

Materials  and  Supplies  Costs 245 

Accounts  Receivable  Costs 247 

Distributing  the  Cost  Sheets 247 

Assembling  the  Cost  Sheets 247 

Statistics 248 

Economic  Accounting 248 

Forms 248 

Appendix 250 

Index 255 


INTRODUCTORY 
INTRODUCTION— GENERAL  ACCOUNTING 


MINE  ACCOUNTING  AND 
COST  PRINCIPLES 


CHAPTER  I 
INTRODUCTION 

The  Business  of  Mining. — Before  taking  up  the  subject  of  Accounting 
for  mining  it  is  best  to  have  a  clear  conception  of  the  business  as  compared 
to  other  business  ventures.  While  the  ultimate  object  of  the  business  of 
mining  is  to  win  a  profit  from  operations  the  same  as  in  all  other  lines 
of  business,  nevertheless  the  hazards  and  the  nature  of  the  business 
differ  considerably  from  other  industries. 

In  order  to  make  these  differences  clear,  we  will  set  forth  the  principal 
features,  as  follows: 

First. — The  initial  investment  in  mining  claims,  development  and 
equipment  must  be  proven  by  the  discovery  of  commercial  ore  of  a 
net  value  equal  to  the  amount  of  investment  before  the  investor  can  be 
reasonably  assured  of  the  return  of  his  capital,  which  will  then  be  subject 
only  to  the  fluctuations  in  the  metal,  material  and  labor  markets. 

In  other  lines  of  business  the  amount  of  investment  in  merchandise, 
raw  materials,  property,  etc.,  has  a  certain  marketable  value  from  the 
moment  of  purchase,  and  can  be  disposed  of  at  any  time  thereafter,  for 
the  amount  of  capital  invested  therein,  plus  a  reasonable  profit,  subject 
to  fluctuations  in  the  material  and  labor  markets  and  to  competition. 

Second. — The  income  of  a  mine  is  determined  principally  by  the 
amount  that  the  net  value  of  the  ore  discovered  is  in  excess  of  the  invest- 
ment in  mining  claims,  development  and  equipment,  while  the  income 
of  other  industries  is  determined  by  the  price  at  which  the  purchased  or 
manufactured  article  can  be  sold  above  the  cost  of  production,  and  the 
quickness  with  which  the  investment  is  turned. 

Third. — It  takes  from  three  to  seven  years  as  a  rule,  after  necessary 
development  equipment  has  been  installed  on  a  mineral  property,  to 
prove  the  value  of  the  property,  during  which  time  the  investor  stands 
to  lose  not  only  the  interest  on  his  money,  but  all  or  part  of  his  principal, 
depending  upon  the  amount  of  the  net  value  of  the  commercial  ore,  if 
any,  that  may  be  discovered.  Other  lines  of  industry  have  the  value  of 
their  investment  established  immediately  upon  the  acquisition  of  their 

1 


2  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

stock  and  are  able,  as  soon  as  equipment  necessary  to  handle  the  business 
can  be  installed,  to  offer  their  product  for  sale  at  as  high  a  figure  above 
the  investment  cost  as  competition  and  the  law  of  supply  and  demand, 
etc.,  will  allow. 

Fourth. — Mining,  in  taking  the  risk  involved  in  proving  its  initial 
investment  as  well  as  being  deprived  of  any  return  on  its  investment 
during  this  period,  and  being  a  wasting  industry,  must  obtain  a  higher 
rate  of  income,  after  the  mine  has  been  proven  to  be  income-bearing 
property,  than  is  obtained  by  other  business  in  order  to  insure,  before 
exhaustion,  the  same  average  return  of  income  as  other  lines  of  industry. 

Fifth. — To  operate  a  producing  mine  requires  extraction  of  ore  and 
sale  of  its  recoverable  contents,  which  eventually  exhausts  the  property. 
Therefore,  to  continue  the  life  of  the  business  and  to  keep  the  organization 
intact,  requires  that  the  same  risk  and  uncertainty  and  delay  in  return 
on  investment  as  in  the  beginning  of  the  business  must  again  be  taken 
in  the  reinvestment  in  new  properties  before  the  exhaustion  of  each 
proven  property.  In  the  case  of  other  lines  of  business  that  have  an 
established  trade  it  is  simply  a  question  of  reinvesting  the  liquidated 
capital  that  was  invested  in  stock,  in  the  purchase  of  new  stock  of  finished 
or  raw  materials,  which,  in  the  case  of  successful  commercial  enterprises, 
is  done  three  or  more  times  during  each  year's  operation,  without  any 
hazard  whatsoever. 

In  addition  to  the  main  points  set  forth  above,  mines  are  subject 
to  accidents  by  fire,  floods  and  cave-ins,  of  greater  magnitude  than  is  the 
case  in  other  lines  of  business;  this  at  times  results  in  an  operating  loss 
even  after  the  mine  has  been  proven  to  be  an  income-earning  property, 
and  against  which  there  is  no  insurance  except  in  the  case  of  accident  to 
employees. 

A  proven  property  has  not  only  to  assume  the  risks  and  uncertainties 
above  specified,  which  are  not  assumed  by  other  lines  of  business,  but 
must  also  bear  the  risks  common  to  all  business  of  fluctuations  in  the 
price  of  metals,  wages  of  labor  and  cost  of  supplies,  as  well  as  strikes 
and  acts  of  nature,  which  at  times  may  result  in  a  proven  mine  operating 
at  a  loss  for  any  one  period. 

RELATIONSHIP  OF  ACCOUNTING  TO  THE  BUSINESS 

Accounting  is  not  a  collection  of  arbitrary  forms,  systems,  etc.,  that 
can  be  applied  to  each  and  every  business,  but  is  the  application  of 
certain  principles  to  the  business  by  means  of  double  entry  bookkeeping, 
of  mathematics,  accounts,  forms,  records,  and  systems  in  such  manner 
so  as  to  determine  and  show  the  true  condition  of  a  business  and  the 
actual  operating  results  for  any  one  period  of  operation  in  costs  and  the 
profit  or  loss. 


INTRODUCTION  3 

As  accounting  is  concerned  with  the  results  of  each  of  the  departments 
of  the  business  and  of  the  business  as  a  whole,  it  is  necessary  first  to 
have  a  clear  understanding  of  the  fundamental  duties  of  each  of  the 
departments,  which  from  an  operating  standpoint  may  be  set  forth,  as 
follows: 

The  function  of  Engineering  is  to  furnish  the  technical  information 
necessary  to  production  and  to  design,  specify,  improve  and  maintain 
the  equipment,  materials  and  products;  Purchasing  is  the  obtaining, 
transporting  and  storing  of  the  materials;  Superintendence  is  the  appli- 
cation of  the  labor  of  the  men  and  the  use  of  the  materials  to  the  produc- 
tion of  the  product ;  Selling  is  the  advertising,  disposition  and  distribution 
of  the  product;  while  Management  is  the  coordination  and  regulation  of 
all  these  operating  departments  into  one  harmonious,  efficient  working 
whole  in  conformity  with  the  policies  of  the  Executive  Board. 

Finance  is  the  obtaining  and  disbursing  of  the  money  to  procure 
men  and  materials  necessary  to  carry  on  production,  the  disbursing  of 
earnings,  and  the  banking  and  investing  of  surplus  earnings  and  capital 
returned  from  production;  the  Executive  is  concerned  with  determining 
policies  and  the  bringing  of  the  business  into  a  harmonious  working 
whole  in  conformity  with  the  market  conditions  of  supply  and  demand, 
etc.,  so  as  to  achieve  the  greatest  profit  obtainable  to  the  best  interests 
of  the  business  and  of  all  its  working  parts.  While  the  above  definitions 
may  not  be  theoretically  correct,  they  concisely  set  forth  the  duties  usually 
assigned  to  the  different  operating  departments  in  mining  organizations 
of  the  present  time.  Engineering  is  considered  to  include  the  geological, 
assaying,  mechanical,  and  power  departments. 

In  very  large  organizations  there  is  the  Advisory  or  Consulting 
Departments,  covering  the  legal,  technical  and  social  or  industrial  sides 
of  the  business. 

This  brings  us  up  to  Accounting  which  is  not  concerned  with  any  one 
department  of  work  but  with  the  accounting  for  the  money,  materials 
and  product,  and  the  showing  of  the  results  of  each  and  every  department 
of  labor,  both  operating  and  administrative,  and  of  the  business  as  a 
whole. 

The  relation  of  Accounting  to  the  Executive  and  Financial  Depart- 
ments is  advisory,  the  same  as  Operating  Engineering  is  to  Purchasing, 
Production  and  Management.  While  Engineering  is  of  first  im- 
portance to  Purchasing  and  Production,  Accounting  is  of  equal  value  to 
Engineering  in  Management,  and  is  of  first  importance  to  Selling  and 
Finance,  as  the  determining  of  the  profit  is  the  thing  of  first  importance  to 
every  business,  and  the  showing  of  costs,  earnings  and  the  condition  of 
each  operating  department  of  a  producing  mine  is  absolutely  necessary 
to  intelligent  and  efficient  management. 

Therefore,  it  can  be  readily  understood  that  any  treatise  that  will 


4  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

set  forth  the  principles  of  accounting,  as  applied  to  mining  more  clearly 
and  in  a  more  practicable  manner  will  be  of  great  benefit  to  the  business 
of  mining. 

ORGANIZATION  OF  THE  BUSINESS 

Before  endeavoring  to  set  forth  the  functions  of  one  department  of 
a  business  one  must  first  have  a  distinct  concept  of  the  business  as  a 
whole,  and  of  each  department's  relation  to  the  other  departments. 


DIVISION  AND  DEPARTMENTAL    UNITS  OF  A 
MINING  ORGANIZATION 


Market  Conditions 


Cube-Business 


Operation  i 


I  •  Engineering 
?= Purchasing 
3  ( Production 
\Superintendenc 

4-  Selling 

5-  Management 


Administratis 


'on  { 


a  -  Executive 
6  ( b  -  Financial 
C  -Accountira 


Chart  I. 


The  business  of  mining  consists  of  the  two  grand  divisions  of  Adminis- 
tration and  Operation,  and  can  be  symbolized  by  a  cube,  the  four  sides 
representing  the  Operating  Departments  of: 

Engineering 

Purchasing 

Production  or  Superintendence  and 

Selling 

the  top  Management,  and  the  bottom  the  Administrative  Departments 
of: 

Executive 

Financial  and 

Accounting 

That  upon  which  the  cube,  or  business,  rests  is  the  market  conditions. 
In  a  properly  organized  business,  sufficiently  large  to  require  separate 
departmental  organizations,  each  of  these  divisions  will  have  its  head. 
Nevertheless,  the  functions  and  work  of  each  will  be  so  intertwined  as 
to  make  a  consistent  working  whole.     Also  while  each  department  will 


INTRODUCTION  5 

be  concerned  with  its  own  duties,  it  will  in  a  minor  way  within  its  own 
organization,  exercise  the  functions  of  each  and  all  of  the  other 
departments. 

The  Executive  is  represented  in  operations  by  the  Management, 
which  is  symbolized  by  the  top  of  the  cube,  and  contacts  all  operating 
departments,  while  Finance  is  represented  in  operations  by  Accounting, 
which  is  symbolized  by  the  bottom  of  the  cube,  and  also  contacts  all 
operating  departments. 

Therefore,  in  a  properly  organized  mining  business  the  Accounting 
Department  is  generally  divided  into  two  divisions  to  conform  to  the 
Operating  and  Administrative  sections  of  the  business. 

DEFINITION  OF  ACCOUNTING  TERMS 

As  accounting  is  the  language  of  business,  there  is  great  need  of 
standardization  in  the  use  of  all  accounting  terms  and  a  clear  definition 
as  to  the  meaning  of  each  term  in  order  to  do  away  with  the  present  ambi- 
guity in  the  statements  of  business  and  to  fill  the  lack  of  uniform  business 
data. 

The  effort  has  been  made  in  the  following  pages  to  be  uniform  in  the 
use  of  business  and  accounting  terms  and  so  to  set  forth  the  facts  as  to 
allow  of  clear  concepts  of  the  meaning  of  the  usual  terms. 

NEED  FOR  BETTER  UNDERSTANDING  OF  ACCOUNTING 

In  the  production  of  its  product,  the  business  of  mining  requires  the 
employment  and  utilization  of  men,  money,  machinery  and  materials, 
and  the  profitable  operation  of  the  business  depends  principally  upon  the 
intelligence,  ability  and  cooperation  of  the  men  who  constitute  the 
executive,  administrative  and  operative  force,  generally  spoken  of  as 
Capital  Management  and  Labor. 

In  the  present  day  organizations,  Capital,  the  Stockholders,  is 
represented  by  the  Board  of  Directors  and  the  Financial  and  Accounting 
Departments;  Management  by  the  Executive  Department  the  Manager 
and  the  heads  of  the  Engineering,  Purchasing,  Superintendence  and 
Selling  Departments;  while  Labor  has  had  little  or  no  representation  in 
the  organization  except  as  raw  material,  until  recently. 

The  primary  function  of  accounting  is  the  recording,  analyzing  and 
distributing  of  the  money,  men,  materials  and  product  involved  in  the 
activities  of  each  and  every  department  of  the  business  so  as  to  show  at 
set  intervals  the  total  net  results  of  the  business  in  costs  and  earnings 
and  the  true  condition  of  the  business,  thereby  keeping  the  whole  organi- 
zation informed  of  the  facts.  To  do  this,  however,  the  principles  of  the 
accounting  system  in  all  its  details  must  be  based  upon  and  be  identical 
with  the  principles  and  organization  of  the  business,  otherwise  a  perfect 


6  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

photograph  of  the  business  in  figures  cannot  be  obtained.  Therefore, 
the  accounting  system  can  be  perfected  only  as  the  organization  is 
perfected. 

Considering  the  nature  of  accounting,  it  can  be  readily  seen  why 
uniformly  efficient  and  intelligent  accounting  results  in  an  organization 
of  size  is  so  difficult  to  obtain;  also  why  it  is  necessary  that  all  the  account- 
ing should  be  a  complete  unit  and  be  under  one  head,  and  that  this 
head  should  be  familiar  with  all  the  details  of  the  organization  and 
business  and  that  each  of  the  operating  heads  should  have  at  least  a 
working  knowledge  of  accounting.  No  other  department  of  the  organi- 
zation requires  such  a  broad  knowledge  of  the  business  details  and 
fundamentals,  nor  is  so  dependent  upon  the  cooperation  of  the  other 
departments  in  order  to  properly  execute  its  work.  The  importance  of 
accounting  is  shown  by  the  fact  that  no  department  of  the  business  can 
express  the  results  of  its  activity,  or  carry  on  its  work  intelligently  for 
any  length  of  time,  without  the  assistance  of  accounting,  nor  can  the 
results  of  the  business,  nor  its  condition  be  shown  except  through  ac- 
counting and  costing. 

Therefore,  a  knowledge  of  its  basic  principles  is  essential  not  only 
to  the  employees  of  the  Accounting  Department  and  to  every  depart- 
mental head  of  the  business,  but  to  every  stockholder  or  person  who 
relies  upon  the  reports  of  directors  and  officers  for  his  knowledge  of  the 
business  in  which  he  has  invested  his  money. 


CHAPTER  II 

GENERAL  ACCOUNTING 

General  Accounting  is  the  applying  of  the  principles  of  accounts  to  a 
business  so  as  to  show  the  results  of  operations  in  profit  or  loss,  and  to 
obtain  a  true  statement  of  the  condition  of  the  business  at  the  end  of  each 
operating  period. 

PURPOSE  OF  ACCOUNTING 

Mining  is  a  business,  the  same  as  other  industries,  and  is  operated 
for  the  profit  to  be  obtained  therefrom.  Therefore,  proper  accounting  is 
as  necessary  to  intelligent  and  profitable  operation  and  management  as 
proper  engineering  is  to  the  efficient  production  of  mining. 

Accounting  efficiency  can  not  be  obtained  unless  there  is  a  definite 
idea  of  the  results  desired  and  of  the  methods  of  procedure.  The  purpose 
of  accounting  may  be  summarized,  as  follows: 

1.  To  verify  and  check,  analyze  and  record,  the  business  transactions  and  the 
operations  in  such  manner  as  to  show  at  regular  intervals  a  true,  correct  and  intelligent 
statement  of  the  condition  of  the  business,  and  the  results  of  operations  in  costs  and 
earnings. 

2.  To  furnish  to  the  officers  and  to  the  different  operating  department  heads  the 
results  of  operations  for  each  period,  within  such  time  as  to  enable  them  to  utilize  the 
knowledge  obtained  therefrom  in  the  succeeding  period. 

3.  To  summarize  and  compare  the  results  of  the  operations  of  each  period  and  report 
to  the  Manager  and  Directors  the  fluctuations  when  compared  with  previous  periods. 

The  check  of  the  reports,  statements,  etc.,  of  the  business  transactions 
and  of  the  operations  should  determine  the  accuracy  of  each  individual 
item,  or  operation,  and  the  verification  of  each  transaction  or  operation 
should  be  such  as  to  reduce  leaks,  thefts,  extravagances,  omissions  and 
misrepresentations  to  a  minimum. 

The  Accounting  Department  is  not  to  decide  as  to  whether  or  not 
efficiency  has  been  obtained  in  the  different  department  operations,  but 
is  to  report  the  actual  results,  conditions  and  fluctuations  of  the  depart- 
mental operations  to  the  management  and  to  the  executive  in  such 
manner  as  to  enable  them  to  ascertain  whether  or  not  efficiency  is  being 
obtained,  and  to  furnish  to  the  different  department  heads  all  the 
accounting  information  that  may  be  necessary  to  assist  each  to  obtain 
efficiency. 

7 


8  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

ORGANIZATION  OF  ACCOUNTING  DEPARTMENT 
In  order  to  conform  with  the  general  organization  of  mining  opera- 
tions, the  accounting  is  usually  divided  into  two  departments. 

1.  Administrative  Department. 

2.  Operating  Department. 

The  Administrative  or  Corporate  Department  is  concerned,  first,  with 
the  accounting  in  connection  with  promotion  and  organization,  and, 
finally,  with  the  dissolution  of  the  business.  However,  its  principal 
concern  is  with  the  results  of  the  Operating  Department  covering  the 
development,  the  equipment,  and  the  production  of  the  mine  property. 
The  Administrative  Department  is  under  the  direct  supervision  of  the 
Secretary  and  the  Treasurer  of  the  company,  and  the  indirect  supervision 
of  the  Auditor  or  Comptroller. 

In  large  business  organizations  of  many  branches  or  subsidiary 
organizations,  the  accounting  that  is  usually  done  by  the  Treasurer  and 
the  Secretary,  concerning  the  administrative  side  of  the  business  is  some- 
times done  under  the  supervision  of  a  Comptroller  who  is  the  general 
head  of  the  accounting,  while  the  General  Auditor  is  the  head  of  the  oper- 
ating accounting  and  costs,  etc.,  and  his  assistants  are  the  auditors  who 
verify  the  accounting  work  of  the  different  operating  organizations  and 
departments. 

The  Operating  Department  is  concerned  with  the  details  of  the 
development,  equipment  and  production  operations  of  the  mine  and  other 
property,  and  the  transmitting  of  the  results  of  operations  to  the  Admin- 
istrative Department.  The  Operating  Department  is  generally  directly 
under  the  Chief  Clerk  or  Chief  Accountant  and  indirectly  under  the 
Auditor. 

The  organization  of  the  Accounting  Department  depends  on  the  form 
of  organization  of  the  business,  whether  corporate,  partnership,  etc.,  the 
scale  of  operations,  the  method  of  mining  and  treatment  of  ores,  and  the 
disposition  of  the  mine  and  smelter  product.  As  the  mining  business  is 
generally  carried  on  in  the  corporate  form  the  accounting  methods, 
etc.,  set  forth  in  this  treatise  will  be  those  particularly  applicable  to  a 
corporation. 

The  organization  of  the  Operating  Department  may  be  a  single  unit 
under  the  Chief  Clerk  or  Chief  Accountant,  with  one  set  of  books  and 
records  whose  accounts  are  closed  directly  into  the  Administrative 
Department's  books;  or  the  organization  may  be  of  several  units  under 
an  Accountant  for  each  unit,  with  separate  sets  of  books  and  records 
whose  accounts  are  closed  either  into  a  set  of  general  operating  books  and 
then  into  the  Administrative  or  Corporate  Department's  books,  or  closed 
directly  into  the  Administrative  Department's  books. 

Again,  the  Mine  Department  may  be  the  principal  unit  and  the  other 
departments,  such  as  the  Smelting,  Refining,  and  Selling,  etc.,  be  sub- 


GENERAL  ACCOUNTING 


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10  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

units  whose  control  accounts  are  carried  in  the  Mine  Department's  books; 
and  this  latter  method  is  the  simplest  and  easiest  to  operate. 

PRINCIPLES  OF  GENERAL  ACCOUNTING 

The  business  of  each  producer  of  raw  and  finished  materials  is  similar 
in  basic  principles,  in  that  after  the  necessary  capital  to  finance  the  busi- 
ness has  been  paid  in,  either  in  cash  or  its  equivalent,  and  the  initial  dis- 
bursements made  for  the  purchase,  development  and  equipment  of  the 
property  which  must  be  made  before  production  can  begin,  the  remaining 
amount  of  the  capital,  known  as  working  capital,  continuously  rotates 
through  five  consecutive  phases  of  operation,  as  follows: 

First. — Disbursements  of  labor,  materials  and  expense  are  either  made  or  contracted 
for  in  order  to  operate  the  business. 

Second. — Production  as  the  result  of  operation  is  created  and  shown  at  the  amount 
of  the  expense  invested  in  the  product. 

Third. — Sales  are  made  of  the  product  or  contracts  made  for  the  future  deliveries  of 
the  product. 

Fourth. — Receipts  for  the  delivery  of  the  sales  are  created,  payment  for  which  the 
buyers  or  other  parties  will  be  responsible. 

Fifth. — Cash  is  received  for  the  delivered  product  on  the  due  date  and  is  used  to 
liquidate  the  disbursements,  etc. 

The  business  of  production  continues  to  rotate  through  these  five  stages 
as  long  as  production  operations  exist. 

However,  in  common  with  all  other  business  it  is  necessary  at  the 
end  of  each  operating  period  to  determine  the  actual  profit  or  loss  in 
order  that  there  may  be  known  what  amount  may  be  distributed  as 
dividends  and  what  set  aside  as  surplus  and  in  order  that  a  balance 
sheet  may  be  drawn  showing  the  condition  of  the  business  in  the  different 
stages  of  operation,  as  on  a  certain  date. 

Therefore,  the  accounting  principles  of  the  business  of  mining  upon 
which  scientific  accounting  must  be  based  are,  as  follows: 

1.  (a)  Capital. 

2.  Disbursements. 

3.  Production. 

4.  Sales. 

5.  Receipts. 
1.  (6)  Cash. 

6.  Profit  or  Loss. 

7.  Dividends. 

8.  Surplus. 

9.  Balance  Sheet,  or  Statement  of  Condition  of  Business. 

These  principles  underlie  the  accounting  procedure  of  any  business 
producing  raw  or  finished  materials,  which  includes  factories  as  well  as 
mines,  regardless  of  the  individual  character  of  the  business. 


GENERAL  ACCOUNTING  11 

The  first  requisite  is  the  drawing  of  a  Chart  of  Principles,  as  shown  by- 
Chart  II,  illustrating  the  principles  of  the  business  and  the  accounting 
sub-divisions  in  proper  order  and  relation  one  to  the  other,  for  use  as  a 
guide  in  the  accounting,  and  in  order  that  the  results  of  operations  may 
be  properly  and  completely  expressed. 

Working  Factors. — After  the  Chart  of  Principles  has  been  drawn  it  is 
necessary  that  these  principles  be  applied  to  the  business  in  such  manner 
as  to  give  a  correct  picture  in  figures  of  the  condition  of  the  business  and 
of  the  results  of  operations  for  any  one  period  in  costs  and  earnings. 
In  order  that  this  may  be  obtained  and  that  there  may  be  determined 
a  definite  and  true  basis  upon  which  the  accounting  structure  may  be 
built  and  uniformly  operated,  it  is  necessary  that  an  analysis  of  the 
business  be  made  and  there  be  established  working  factors,  as  follows: 

1.  A  "Chart  of  Accounts"  in  harmony  with  the  Accounting  Principles,  that  will 
enable  the  showing  of  the  true  condition  of  the  business,  and  the  results  of  operations 
in  costs  and  earnings. 

2.  A  "Schedule  of  Charges  and  Credits"  to  be  made  to  the  different  accounts  to 
insure  uniformity  and  accuracy  in  compiling  the  results  of  operations. 

3.  A  Schedule  of  the  Accounting  Procedure  so  as  to  establish  a  uniform  efficient 
working  whole. 

4.  A  File  of  the  Forms  and  Records  upon  which  to  compile  and  record  the  business 
and  operating  transactions. 

The  Chart  of  Accounting  Principles  (No.  II)  will  be  the  same  for  all 
mining  units  and  shows  the  principles  necessary  to  be  recognized  in 
establishing  the  four  working  factors  to  express  properly  the  condition 
and  results  of  each  business  in  costs  and  earnings. 

Chart  of  Accounts. — A  large  percentage  of  business  men  and  some 
accountants  seem  to  think  that  names  of  accounts  can  be  anything  that 
the  owner  of  the  business  may  desire.  This  is  the  result,  no  doubt,  of  not 
establishing  first  a  Chart  of  Principles.  The  names  of  accounts  should 
clearly  express  the  business  operations  and  results  according  to  principles, 
otherwise  confusion  and  lack  of  clearness  will  ensue. 

The  Charts  of  Accounts  shown  (Nos.  Ill,  XI  and  XIV)  would  be  appli- 
cable only  to  mines  worked  by  means  of  shafts  and  drifts,  and  producing 
direct-smelting  ores,  which  were  being  smelted  by  the  company,  and  the 
metal  contents  being  sold  in  the  market.  Such  charts  must  be  made  to 
fit  each  individual  business. 

This  can  be  done  by  taking  the  Chart  of  Principles  (No.  II)  and 
dividing  the  accounting  principles  into  Administrative,  as  shown  by 
Chart  II-A,  and  Operative,  as  shown  by  Chart  II-B,  and  then  determin- 
ing the  accounts  necessary  to  properly  and  completely  express  the  business 
results,  as  shown  by  Charts  III,  XI  and  XIV. 

However,  the  accounts  need  not  necessarily  appear  in  the  ledger  in 


12  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

the  same  order  as  on  the  Charts  of  Accounts,  but  in  the  order  in  which 
most  convenient  for  posting  and  reference. 

The  Charts  of  Accounts  must  show  the  actual  operating  and  adminis- 
trative departments,  sub-departments,  etc.,  of  the  business,  in  order  that 
a  true  picture  of  the  results  of  operations  may  be  made  at  set  intervals. 
This  is  not  a  matter  of  personal  opinion  or  desire  as  some  think,  but  is  a 
matter  of  clearly  expressing  facts. 

Schedule  of  Charges  and  Credits. — The  Schedule  of  Charges  and 
Credits  must  state  what  shall  be  charged  or  credited  to  each  operating- 
and  administrative-department  account,  sub-department  account,  depart- 
ment-unit account,  etc.,  in  order  to  insure  correctness  and  uniformity 
in  the  accounting,  and  to  enable  the  determination  of  the  true  cost  and 
the  resulting  profit  or  loss  of  each  operation,  as  well  as  to  fix  definitely 
the  responsibility  of  accurately  reporting  and  recording  charges  and 
credits. 

The  reports  of  the  Operating  Department  must  show  what  was  done, 
and  when  and  where;  and  the  Accounting  Department  must  compile 
the  operating  charges  and  credits  according  to  the  schedules,  otherwise 
a  true  and  correct  statement  of  operating  results  can  not  be  obtained, 
and  the  usefulness  of  the  reports  of  the  Accounting  Department  to  the 
Executive,  the  Manager  and  the  Operating  Officials  will  be  impaired. 

The  uselessness  of  considerable  of  present-day  accounting  and  costing 
is  the  direct  result  either  of  the  heads  of  the  Operating  Departments 
determining  how  charges  shall  be  made,  the  lack  of  a  definite  schedule 
of  charges  in  the  Accounting  Department,  or  the  inability  of  the  Account- 
ing Department,  on  account  of  insufficient  authority  given  to  it,  to  deter- 
mine whether  or  not  the  reports  of  the  operators  are  correct,  which 
sometimes  results  in  false,  juggled  or  unintelligible  accounting  of  little 
or  no  value  to  the  Management  or  Operating  Department  Heads. 

Differences  in  Mining  Methods  and  Character  of  Mines. — The 
Charts  of  Accounts  and  Schedules  of  Charges  must  be  made  to  fit  the 
requirements  of  each  class  of  mines,  which  may  be  stated,  as  follows: 

As  to  Method  of  Mining: 

A-\.  Mines  being  worked  by  means  of  shafts,  drifts  and  stopes; 

2.  Mines  being  worked  by  surface  pits  with  steam  shovels  or  hand  labor. 
As  to  Character  of  Ores  Mined: 

B-l.  Mines  producing  direct-smelting  ores; 

2.  Mines  producing  conceritrating-metallic  ores; 

3.  Mines,  producing  concentrating-smelting  ores;  and 

4.  Mines  producing  leaching  ores. 
As  to  Method  of  Disposal  of  Products: 

C-l.  Mines  selling  their  products  to  smelters; 

2.  Mines  smelting  their  ores  and  selling  their  smelter  product  to  refineries  or 

brokers;  and 

3.  Mines  smelting,  refining  and  selling  their  products,  and  the  product  of 

other  mines. 


GENERAL  ACCOUNTING  13 

Necessarily  there  would  need  to  be  variations  in  the  Chart  of  Oper- 
ating Accounts  to  fit  the  operations  of  each  class  of  mines,  and  differences 
to  take  care  of  the  different  minerals  mined,  as  well  as  variations  in  the 
subsidiary  accounts  and  the  charges  thereto  of  each  mine  of  each  class, 
in  order  to  suit  the  local  conditions  and  problems  peculiar  to  each. 
Therefore,  it  can  be  readily  seen  that  neither  a  Chart  of  Accounts,  nor  a 
Schedule  of  Charges  could  be  drawn  so  as  to  be  entirely  applicable  to  all 
mines. 

Forms  and  Procedure. — While  the  Administrative  Accounting  forms 
and  procedure  is  practically  uniform  for  all  mines,  the  Operating  forms 
and  records  and  procedure  must  vary  to  suit  the  operating  conditions  of 
each  mine.  Nevertheless,  where  the  accounting  is  based  on  principles,  as 
shown  by  Chart  II,  the  procedure  and  forms  for  each  class  of  mines  would 
be  nearly  uniform. 

Only  the  more  important  forms  have  been  shown  in  illustrating  the 
accounting  procedure.  Of  course,  these  forms  would  have  to  be  changed 
to  suit  the  peculiarities  of  each  business,  as  most  of  the  forms  given  herein 
are  those  applicable  to  copper  mining. 

The  Administrative  Accounting  procedure  should  be  practically  the 
same  for  each  mine,  only  the  Operating  procedure  will  vary  according 
to  the  size  and  character  of  operations. 

The  General  Operating  procedure  set  forth  in  this  work  is  that  suitable 
for  a  metal  mining  business  as  illustrated  by  the  Charts  of  Accounts. 
However,  it  must  be  understood  that  the  Charts  of  Accounts,  the 
Schedule  of  Charges,  and  the  detail  forms  and  procedure  for  operation 
must  be  made  so  as  to  fit  each  business  and  must  change  as  the  require- 
ments of  the  business  demand,  otherwise  the  accounting  system  would 
not  be  in  harmony  with  the  operations  of  the  business 

ACCOUNTING  DIVISIONS 

While  the  Principles  of  Mine  Accounting  procedure  follow  one  another 
in  regular  order  as  here-in-before  set  forth,  and  while  the  four  working 
factors  are  generally  worked  out  so  as  to  make  a  complete  consecutive 
whole,  in  actual  practice  the  accounting  work  is  generally  divided  into 
two  divisions  of: 

1.  Administration,  and 

2.  Operation. 

In  order  that  the  principles  involved  in  each  division  of  work  may  be 
known  and  followed,  charts  similar  to  Charts  II-A  and  II-B  must  be 
drawn  as  a  basis  of  the  accounting  of  each  division,  and  the  proper  charts 
of  accounts  established  to  conform  to  these  principles  as  shown  by  Charts 
III  and  XI. 


14  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

The  work  of  each  of  these  departments  is  complete  and  separate  from 
the  other.  However,  the  summary  of  the  operating  results  are  closed 
into  the  Administrative  Records  at  the  end  of  each  year  or  each  period. 
While  the  principles  of  the  Administrative  and  Operating  Accounting  are 
always  as  shown,  in  practise  the  division  between  Operating  and  Admin- 
istrative Accounting  may  not  be  in  accordance  with  theory,  but  to  suit 
the  desires  of  the  Executive  or  requirements  of  the  business. 

STAGES  OF  OPERATION 

During  the  development  stage  of  mining  the  Administrative  and 
Operating  Accounting  have  to  do  with  the  capital  receipts  and  capital 
investments  in  purchase,  development  and  equipment  of  the  property. 
During  the  production  stage  the  Operating  Accounting  deals  with  the 
Operating  Disbursements,  Production,  Sales,  Receipts  and  Cash,  while 
the  Administrative  Accounting  takes  care  of  the  Capital  and  Adminis- 
trative Disbursements,  Receipts  and  Cash,  the  net  results  of  the 
Operating  Accounting  and  of  the  accounting  of  the  Income,  Dividends 
and  Surplus  and  the  drawing  up  of  the  Balance  Sheet. 

In  the  life  of  the  average  mine,  we  have  two  stages  of  operation  of  the 
property  which  must  be  accounted  for,  as  follows: 

1.  Development,  and 

2.  Production. 

However,  on  account  of  the  fact  that  practically  all  mining  requiring 
an  accounting  department  is  done  by  corporate  organizations,  and 
the  life  of  all  successful  mining  corporations  consists  of  four  distinct 
periods  of  existence,  there  are  two  more  stages  added  making  four  in  all 
that  must  be  accounted  for,  as  follows: 

Promotion  and  Organization  of  the  Business, 
Development  and  Equipment  of  Property, 
Production  of  Property,  and 
Dissolution  of  the  Business. 

The  accounting  for  each  one  of  these  periods  is  distinct  and  different  from 
the  others. 

While  the  accounting  required  during  the  period  of  promotion  and 
organization  of  the  corporation  when  the  necessary  capital  is  raised  with 
which  to  take  care  of  the  business,  and  the  accounting  for  the  develop- 
ment and  equipment  of  the  property  when  the  capital  that  has  been 
raised  is  invested  in  the  business,  is  very  simple,  nevertheless  it  is  very 
important,  for,  if  the  accounting  during  these  periods  does  not  properly 
show  the  capital  that  was  paid  in  to  the  business,  and  does  not  properly 
account  for  the  invested  capital  so  as  to  meet  the  requirements  of  the 
Federal  Tax  Laws  and  the  Treasury  Department's  Rulings  governing  the 


GENERAL  ACCOUNTING  15 

determining  of  Income  and  Excess  Profit  Taxes,  etc.,  the  business  may  be 
compelled  to  pay  excessive  Federal  Taxes,  as  soon  as  it  is  on  a  producing 
basis. 

Both  the  Administrative  and  Operative  Accounting  required  during 
the  period  of  development  has  to  do  with  the  investment  of  the  capital 
in  property  and  equipment,  while  the  accounting  performed  during  the 
period  of  production  is  of  entirely  different  nature  and  is  highly  important 
as  intelligent  and  proper  production  accounting  is  absolutely  necessary 
to  obtain  efficient  operation  and  management,  as  well  as  to  determine 
the  true  profit  or  loss  resulting  from  each  and  every  department,  and  of 
the  business  as  a  whole  for  each  period  of  operations. 

The  accounting  required  upon  the  winding  up  of  the  business  and 
dissolution  of  the  corporation  while  necessary,  also,  is  simple  and,  of 
course,  final. 

Therefore,  in  order  to  deal  consecutively  with  accounting  as  it  comes 
up  in  the  course  of  the  life  of  a  business,  there  must  be  shown,  first,  the 
Administrative  Accounting  performed  during  promotion;  second,  the 
Administrative  and  Operative  Accounting  preliminary  to  production 
covering  the  investment  of  the  capital  in  the  purchase,  development  and 
equipment  of  the  property;  third,  the  Operating  Accounting  covering 
Production  and  the  Administrative  Accounting  dealing  with  the  results 
of  production;  and,  fourth,  the  accounting  necessary  to  close  the  business. 

This  will  divide  the  accounting  into  four  stages  to  take  care  of  the 
four  stages  of  business,  as  follows: 

1.  Promotion  and  Organization, 

2.  Development  and  Equipment, 

3.  Production  and  Investment, 

4.  Liquidation, 

and  will  divide  these  four  stages,  except  during  Promotion  and  Organi- 
zation when  only  Administrative  Accounting  is  involved,  into  the  two 
accounting  divisions  of : 

1.  Administration,  and 

2.  Operation, 

to  properly  account  for  like  divisions  of  Operation. 


SECTION   1 
PROMOTION— DEVELOPMENT  AND  EQUIPMENT 


CHAPTER  III 
CAPITAL 

PROMOTION  AND  ORGANIZATION 

The  accounting  required  during  Promotion  has  to  do  with  obtaining 
capital,  and  while  it  is  simple,  it  is  the  beginning  of  the  accounting  records 
and  must  be  covered  in  order  to  make  the  records  complete.  All  the 
accounting  performed  during  the  Promotion  or  Capital  stage  is  performed 
by  the  Administrative  Department. 

Capital  for  Prospecting. — After  a  mining  business  has  been  established 
on  a  production  basis,  a  certain  amount  of  the  earnings  are  used  for 
prospecting  of  the  property  owned  and  the  prospecting  of  promising 
properties  owned  by  others  who  are  unable  to  develop  their  ground,  and 
who  are  willing  to  give  an  option  for  development  and  purchase  of  their 
property. 

However,  before  a  mining  business  can  originate,  mineral-bearing 
ground  must  be  discovered  and  located  in  accordance  with  the  Federal 
Laws  governing  the  locating,  holding  and  acquiring  patent  to  Mineral 
Lands. 

The  prospecting  for  mineral-bearing  ground  is  carried  on  generally 
by  individuals  acquainted  with  the  practical  side  of  mining  and  who  are 
known  as  prospectors.  This  class  of  men  obtain  the  necessary  capital 
for  prospecting  by  savings,  or  by  grub  stakes,  or  funds  furnished  by 
others  who  are  to  participate  in  anything  discovered. 

It  is  very  seldom  that  these  men  ever  develop  their  prospects,  any 
more  than  what  can  be  done  by  the  yearly  assessment  work  necessary 
to  hold  the  located  claim  or  claims. 

After  promising  ground  is  discovered  and  located  by  the  prospector, 
he  endeavors  to  interest  those  who  have  sufficient  capital  either  to  develop 
the  property  for  an  interest,  or  to  purchase  it  outright. 

Upon  the  investment  of  capital  to  develop  a  prospect  is  the  beginning 
of  the  mining  business,  which,  on  account  of  the  hazardous  nature  and 
the  large  investment  that  is  usually  required  to  make  a  producer  of  a 
prospect,  is  generally  carried  on  as  an  incorporated  stock  company. 

Determining  the  Capitalization. — The  first  thing  to  be  decided  as  to 
the  formation  of  a  stock  company  is  the  amount  of  capitalization.  The 
capitalization  of  the  company  to  be  organized  should  be  sufficient  to 
take  care  of  the  amount  specified  in  the  Engineer's  report  as  necessary 
to  prove  the  property,  plus  an  amount  that  will  meet  the  terms  of  the 

16 


CAPITAL  17 

option  for  purchase  of  the  property,  as  well  as  give  a  sufficient  margin 
of  reserve  to  take  care  of  any  reasonable  unforeseen  emergencis  or 
difficulties. 

Organizing  the  Business. — As  a  rule  the  initial  company  is  a  develop- 
ment company  with  a  capital  reasonably  sufficient  to  prove  the  value  of 
the  property,  and  the  company  may  become  defunct  upon  the  property 
proving  a  failure,  or  upon  the  proving  of  the  property,  it  is  absorbed  by  a 
mining  company  having  a  capital  sufficient  to  take  over  the  stock  of 
the  development  company  at  its  original  investment  value  plus  the 
additional  value  due  to  the  results  of  the  proving  of  the  mine,  and  to 
take  care  of  the  equipment  necessary  to  production,  and  to  give  ample 
working  capital  to  carry  on  production  operations. 

After  the  amount  of  capital  has  been  determined,  the  Articles  of 
Incorporation  drawn  and  filed,  and  Certificate  of  Incorporation  has 
been  received  from  the  proper  official  of  the  State  in  which  incorporated, 
a  certified  copy  of  the  Articles  are  filed  with  the  County  Recorder  of  the 
County  in  which  the  business  is  to  be  done,  and  the  accounting  record 
of  the  origination  of  the  business  is  made  by  an  entry  in  the  Journal 
(Form  No.  1),  as  follows: 

Capital  Stock  Unissued $350,000.00 

To  Capital  Stock  Authorized $350,000. 00 

"Being  the  amount  of  capital  stock  authorized  for 
sale  by  the  Articles  of  Incorporation  of  the  A.  B.  C.  De- 
velopment Co.,  and  which  is  in  the  Treasury  as  unissued  in 
all  35,000  shares  at  a  par  value  of  $10  per  share." 

The  posting  of  this  entry  to  the  ledger  Form  No.  2  is  the  beginning  of 
the  accounting  record  and  procedure. 

Capital  Receipts. — After  the  initial  meeting  of  the  stockholders  elect- 
ing the  directors,  etc.,  and  the  initial  meeting  of  the  directors  electing  the 
officers,  the  recording  and  the  issuing  of  certificates  of  stock  is  done  by 
the  President  and  Secretary,  for  receipts  of  cash  or  its  equivalent,  and 
this  is  the  beginning  of  the  actual  accounting  of  the  business. 

The  record  of  the  owners  of  the  Paid  in  Capital  of  the  company  or 
business  is  kept  by  the  Secretary  of  the  company.  Each  owner  of  a 
share  of  the  capital  stock  is  given  by  the  Secretary,  a  stock  certificate, 
showing  the  amount  of  his  share,  the  date  issued,  etc.  Upon  delivery  of 
the  stock  certificate  a  receipt  for  same  is  taken  from  each  owner  and  for 
record  this  receipt,  showing  the  address,  is  filed  in  an  alphabetical  file  and 
gives  the  Secretary  a  convenient  record  of  the  names  and  addresses  of  all 
owners  of  stock. 

A  record  of  the  certificates  of  stock  issued  is  kept  on  the  credit  side  of 
the  Capital  Stock  Journal  (Form  No.  3)  as  to  date  of  issue,  and  this  record 
is  transferred  to  the  credit  side  of  each  account  in  the  Capital  Stock 
Ledger  (Form  No.  4),  which  is  kept  so  as  to  show  the  stock  owned  by  each 


18 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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CAPITAL 


19 


stockholder.  The  transfer  of  an  original  certificate  to  another  party 
requires  the  cancellation  of  the  original  certificate  and  the  issuance  of  a 
new  certificate.  Therefore,  the  cancelled  certificate  is  entered  on  the 
debit  side  of  the  Capital  Stock  Journal  and  posted  to  the  debit  of  the 
original  owner,  thereby  closing  out  the  record  of  his  interest  in  the  com- 
pany, while  the  new  certificate  is  credited  to  the  new  owner  and  recorded 
in  the  same  manner  as  the  original  certificate. 

The  laws  of  most  of  the  states  require  that  there  shall  be  a  Registrar 
of  the  stock  issued  for  protection  of  the  stockholders.     However,  the 


IX  WHOSE  NAME 

CERTIFICATE  ISSUED 

Received  the  within  described  Certificate  sub- 
ject to  tbe  conditions  of  the   Articles  of  Incor- 
poration and  Bt-Lhws  of  the  Companjr 

Foli„ 

Xu. 

Certificate 

Xo. 
Shares 

Total 
X*o.  Shares 

BATE 

BT  WHOM  SLT.REXDEP.ED 

CERTIFICATE  CANCELLED 

LEFT  BY 

Folk 

Xo. 

Jcrtilitat 

No. 
SI  ares 

Form  3. — Capital  Stock  Journal. 

Secretary  is  responsible  for  the  record  of  the  owners  of  the  stock  of  the 
corporation,  keeps  the  record  (the  Minute  Book)  of  the  deliberations 
and  actions  of  the  stockholders  and  of  their  representatives,  the  directors, 
and  sees  that  the  actions  of  the  stockholders  and  directors  are  carried  into 
execution.  He  is  the  business  representative  of  the  stockholders  and  the 
directors,  and  therefore  his  records  have  to  do  with  the  executive  decisions 
as  to  what  shall  be  done,  and  not  with  what  has  been  done,  which  is  the 
concern  of  the  Treasurer  and  of  the  Accounting  Department. 

The  Treasurer  is  the  custodian  of  the  cash  and  securities  of  the  busi- 
ness and  is  the  distributor  and  banker  of  the  earnings,  also,  he  usually 
keeps  the  accounting  records  of  the  capital  invested  in  the  business  and 
the  results  of  the  operations  in  expense,  receipts  and  earnings,  unless  there 
is  a  Comptroller,  in  which  case  such  accounting  records  are  usually  kept 
in  the  Comptroller's  office. 


20 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


The  distinction  between  the  duties  of  the  Treasurer's  office  and  the 
Auditor's  or  Comptroller's  office  is  rather  indefinite  in  actual  practice  in 
most  organizations.  Theoretically  the  Treasurer  is  concerned  only  with 
cash,  its  receipt,  the  banking  thereof,  and  its  disbursement,  and  the  securi- 
ties in  which  the  surplus  of  the  business  has  been  invested.  In  small 
companies  the  duties  of  the  Secretary,  Treasurer  and  Auditor  or  Comp- 
troller, are  usually  combined  under  one  head,  known  as  the  Secretary  and 
Treasurer. 


CANCELLED 

ISSUED 

Dati 

Remarks 

Folio 

No. 

Shares 

Date 

Remarks 

Folio 

No. 

Share. 

rr 

L~ 

Form  4. — Capital  Stock  Ledger. 

As  remittances  are  received  from  each  subscriber  for  stock,  a  record 
is  made  by  the  Treasurer  on  the  Debit  side  of  the  Administrative  Cash 
Book  (Form  No.  5),  crediting  Capital  Stock  unissued,  as  follows: 

May  1,  1904 — Capital   Stock   Unissued $100,000.00 

Remittance  of  John  Smith  for  10,000  shares  of  capital  stock  at  par 
which  has  been  issued  to  him  by  Certificate  No.  1 

Similar  entries  must  be  made  for  each  remittance.  Remittances  for 
stock  as  shown  by  Cash  Book  must  be  posted  to  the  ledger  accounts,  as 
follows : 


Cash $100,000.00 


Capital  Stock  Unissued. 


$100,000.00 


If  a  statement  is  made  from  the  Ledger  at  any  time  before  all  the  capital 
stock  is  issued  the  remaining  debit  balance,  if  any,  in  the  ledger  account 


CAPITAL 


21 


"Capital  Stock  Unissued"  is  never  shown  on  the  asset  side  of  the  Balance 
Sheet,  but  is  aways  shown  as  deducted  from  the  credit  account  "Capital 
Stock  Authorized,"  as  follows: 

Capital  Stock  Authorized $350,000 

Capital  Stock  Unissued 250,000 

Capital  Stock  Issued $100,000 

Some  times  when  a  corporation  is  formed  to  take  over  the  mine 
property  of  individuals,  the  mine  property  value  agreed  upon  or  a  part 
thereof  is  paid  for  in  stock  at  par. 


DENN  ARIZONA  COPPER  COMPANY 

BISBEE,   ARIZONA 

PATE 

RECEIPT 
VOUCHER 

,      N0' 

EXPLANATION 

FOLIC 

CASH  RECEIPTS 

-1 

TREASURER'S  CASH  FOR 

MONTH   OF 

DATE 

CHECK 
NO. 

EXPLANATION 

FOLIO 

CA 

=  H  DISBUHSEME 

<TS 

_ 

Form  5. — Administrative  Cash  Book. 


When  such  a  transaction  is  being  planned  an  endeavor  should  be  made 
to  have  the  property  owner  give  his  check  for  stock  for  the  amount  agreed 
upon  for  the  property,  and  then  the  company  give  its  check  to  the  prop- 
erty owner  in  payment  of  the  property,  thereby  allowing  the  proper 
entries  to  be  made  in  the  Cash  Book.  In  case  neither  party  has  sufficient 
cash  to  cover  the  transaction,  one  check  can  be  held  until  the  other  is 
received  which  will  result  in  one  check  being  deposited  to  offset  the  pay- 
ment of  the  other. 

However,  when  an  agreement  has  been  entered  into  whereby  the 
company  is  to  deliver  a  certain  number  of  shares  of  capital  stock  for  mine 
or  other  porperty  and  the  transaction  is  closed,  it  will  be  necessary  to  record 
the  transfer  by  a  Journal  entry,  as  follows: 


22 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Property $50,000.00 

To  Capital  Stock  Unissued $50,000. 00 

Five  Thousand  Shares  of  Capital  Stock  at  par  issued  to 
John  Smith  in  payment  of  10  mining  claims  known  as  the 
Black  Jack  Group,  as  set  forth  in  agreement  between  John 
Smith  and  A.  B.  C.  Mining  Co.  dated  May  1,  1904. 

Capital  Expense. — The  acutal  promotion  expense  is  limited  to  the 
cost  of  organizing  the  business  and  advertising,  and  sale  of  stock.  How- 
ever, sometimes  the  promotion  of  the  business  is  not  completed  until 
after  development  work  at  the  property  has  been  started.  In  which  case 
the  expense  of  the  Secretary's  and  Treasurer's  offices  and  the  other 
expense  of  the  administrative  side  of  the  business  is  part  promotion  and 
part  development. 


DENN  ARIZONA  COPPER  COMPANY 

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Form  6. — Administrative  Voucher  Record. 

However,  as  all  the  Administrative  expense  incurred  during  both 
periods  of  promotion  and  development  is  closed  at  end  of  each  year  into 
the  property  account,  it  is  not  necessary  to  proportion  the  Administrative 
expense  between  Development  and  Promotion  in  cases  where  the  Pro- 
motion period  continues  over  into  the  Development  period. 

As  a  rule  there  is  need  for  only  the  disbursement  account,  entitled 
Bills  Audited,  and  three  Administrative  expense  accounts  during  the 
promotion  period,  as  follows: 

Organization  of  Business, 
Advertising  and  Sale  of  Stock,  and 
Administrative  Expense. 


CAPITAL  23 

Disbursements  of  cash  to  pay  expense  as  set  forth  above  are  made  upon 
vouchers  that  have  been  drawn  showing  the  purpose  of  each  disbursement. 
The  record  of  each  cash  disbursement  is  made  in  the  Administrative 
Cash  Book  charging  Bills  Audited,  and  the  record  of  the  expense  is  made 
in  the  Administrative  Voucher  Record  (Form  No.  6).  Posting  is  made 
from  the  summary  of  the  Voucher  Record  to  the  Administrative  Ledger, 
as  follows: 

Organization  of  Business $     585 .  00 

Advertising  and  Sale  of  Stock 3 ,  545 .  00 

Administrative  Expense 4,673. 50 

To  Bills  Audited $8,803.50 

The  posting  from  the  Cash  Book  to  General  Ledger  would  be 

Bills  Audited $8,803. 50 

To  Cash $8,803.50 

Statement  of  Condition  of  Business. — The  period  of  promotion  having 
ended  a  statement  should  be  taken  off  the  Ledger  showing  the  condition 
of  the  business. 

For  example  we  will  say  that  the  business  transacted  during  the  pro- 
motion period  was,  as  follows: 

Sales  of  Capital  Stock  for  Cash $300,000.00 

Sales  of  Capital  Stock  for  Mine  Property 50 ,  000 .  00 

Expense  of  Organization 585 .  00 

Expense  of  Advertising  and  Sale  of  Stock 3 ,  545 .  00 

Expense  of  Administration 4 ,  673 .  50 

Final  Payment  of  Mine  Property  in  Cash 50,000.00 

Therefore,  a  statement  taken  from  the  Ledger  would  show  the 
condition  of  the  business,  as  follows: 

Debits:  Credits: 

Mine  Property $100,000.00     Capital  Stock $350,000.00 

Organization  of  Business.  .  585.00 

Advertising  of  Stock 3 ,  545 .  00 

Administrative  Expense .  .         4 ,  673 .  50 
Cash 241,196.50 

$350,000.00  $350,000.00 


However,  as  the  expense  items  shown  on  the  debit  side  of  the  state- 
ment were  incurred  in  order  to  obtain  the  property  these  items  should 
be  closed  at  the  end  of  the  promotion  period  into  the  Mine  Property 
Account  in  order  to  show  the  Mine  Property  Investment  at  its  true  cost, 
which  is  done  by  an  entry  in  the  Journal,  as  follows: 


24  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

" Mine  Property $8,803 . 50 

To  Organization  of  Business $     585 .  00 

Advertising  and  Sale  of  Stock 3 ,  545 .  00 

Administrative  Expense 4 ,  673 .  50 

Amount   of   the    Promotion    Expense    incurred   to  raise 

the  authorized  capital  to   purchase  and  develop  the  mine 

property." 

These  entries  being  posted  to  the  Ledger  would  give  a  statement 
showing  that  out  of  the  $350,000  of  stock  sold  $108,803.50  was  invested 
in  the  property  and  $241,196.50  was  in  cash  with  which  to  develop  and 
equip  the  property,  as  follows: 

Mine  Property $108,803.50     Capital  Stock $350,000.00 

Cash 241,196.50 


$350,000.00  $350,000.00 


CHAPTER  IV 
CAPITAL— DEVELOPMENT  AND  EQUIPMENT 

The  accounting  performed  during  the  initial  development  and  equip- 
ment stage  has  to  do  with  the  investment  of  capital  in  the  necessary- 
development  and  equipment  of  the  property,  either  to  prove  the  mine 
or  to  bring  it  to  the  production  stage.  During  the  development  stage 
the  accounting  is  divided  between  the  Operating  and  Administrative 
Departments. 

Sufficient  cash  having  been  raised  to  take  care  of  the  property  option 
of  purchase  and  to  carry  out  the  initial  development  and  equipment, 
an  operating  organization  is  formed  to  carry  out  the  plans  of  initial 
development  and  equipment  of  the  property. 

Operating  Organization. — In  forming  the  operating  organization  some- 
one is  appointed  to  check  out  and  account  for  the  cash  to  be  invested 
in  development  and  equipment.  During  the  initial  stage  of  development 
at  the  property  such  a  person  is  generally  a  bookkeeper  who  is  responsible 
to  the  Treasurer.  In  the  case  of  very  small  operations  the  Superintendent 
or  Foreman  in  charge  of  the  property  simply  makes  reports  of  his  dis- 
bursement liabilities  and  detail  segregations  of  expense  showing  the 
proper  distribution  of  the  cash  disbursements  necessary  to  enable  a 
proper  accounting  to  be  made  by  the  Treasurer  or  the  Administrative 
office  as  shown  in  the  supplemental  Chapter  XXIV.  However,  on  account 
of  the  fact  that  the  Administrative  Accounting  Department  is  generally 
located  at  the  corporate  office  of  the  company  specified  in  the  Articles 
of  Incorporation  where  close  touch  can  be  maintained  with  the  directors 
and  officers  of  the  company,  but  which  is  generally  at  such  a  distance  from 
the  property  as  to  prevent  intimate  touch  with  operations,  it  is  necessary 
that  the  accounting  be  divided,  as  soon  as  development  operations  become 
of  any  size,  and  an  Operating  Department  be  created  with  its  head  and 
its  own  bank  and  cash  account. 

Operating  Accounting  Department. — In  order  that  the  Operating 
Accounting  may  be  kept  separate  from  the  Administrative  Accounting 
necessary,  monthly  or  periodical  advances  of  cash  are  made  by  the 
Treasurer  to  the  Operating  Department.  The  receipt  of  these  cash 
remittances  are  recorded  in  the  Operating  Cash  Book  and  cash  dis- 
bursements are  made  by  the  Operating  Accounting  Department  to  pay 
for  materials  and  machinery  purchased,  and  for  wages  and  expense 
incurred  in  development  operations. 

25 


26  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

As  the  accounting  procedure  as  far  as  required  during  the  development 
stage  is  the  same  as  performed  during  the  production  stage,  in  order  to 
avoid  duplication,  only  sufficient  accounting  procedure  will  be  given  to 
illustrate  the  principles  involved  and  to  account  for  the  administrative 
and  operating  expense  which  is  considered  as  part  of  the  investment  in 
mine  property. 

Operating  Accounting. — The  operating  accounting  required  during 
development  is  generally  limited  to  the  recording  of  the  receipts  of  cash 
advanced  by  the  Administrative  Department,  and  the  accounting  of  the 
disbursements  of  such  cash  in  payment  of  labor,  supplies  and  expense  or 
bills  audited  as  well  as  the  segregating  and  analyzing  of  the  disbursements 
so  as  to  show  the  amounts  invested  in  development,  equipment  and 
working  assets. 

The  keeping  of  accurate  records  of  each  construction  and  equipment 
job  is  necessary  in  order  that  the  requirements  of  the  Income  Tax  Regu- 
lations governing  deductions  for  depreciation  and  replacements  may  be 
met  upon  the  property  becoming  a  producer,  as  well  as  to  enable  an  intelli- 
gent adjustment  of  insurance,  in  case  of  fire,  etc. 

Books  of  Record. — The  bound  books  of  record  usually  used  during 
the  development  stage  are  the  Operating  Cash  Book,  Journal,  Bills 
Audited  Record,  Check  Register,  and  General  Ledger.  All  other  records 
such  as  Sub-ledgers,  Time  and  Pay  Rolls,  Supply  Issued  Record,  etc., 
are  loose  leaf  and  of  the  same  form  as  required  during  the  production 
stage. 

General  Accounts. — The  general  ledger  accounts  required  during  the 
development  stage  are,  as  follows: 


1.  Debit  Accounts: 

Exploration  and  Development, 

Development  Overhead, 

Operating  Overhead, 

Accounts  Receivable, 

Cash, 

Materials  and  Supplies, 

Construction  and  Equipment, 

Replacements. 

2.  Credit  Accounts: 

Current  Accounts  Payable, 
Refunds  and  Discounts, 
Reserve  for  Accidents, 
Reserve  for  Depreciation, 
Treasurer. 

3.  Summary  Closing  Accounts: 

Mine  Development  Expense, 
Development  Returns. 


CAPITAL— DEVELOPMENT  AND  EQUIPMENT  27 

4.  Operating  Disbursement  Accounts: 
Labor, 
Supplies, 
Bills  Audited. 

The  department  and  sub-department  accounts  of  each  of  the  general 
development  accounts  and  the  charges  and  credits  thereto  are  the  same 
as  shown  in  Operating  Chart  of  Accounts  No.  Ill,  and  the  Operating 
Schedule  of  Charges,  except  for  Development  Overhead,  of  which  the 
detail  accounts  are  the  same  as  those  shown  for  Ore  Extraction. 

Operating  Disbursements  and  Receipts. — In  order  that  there  may 
be  no  duplication  in  the  illustration  of  the  accounting  procedure  as  set 
forth  under  Production  Accounting  only  the  principles  involved  in 
Development  Accounting  will  be  demonstrated.  Therefore,  we  will 
omit  the  detail  technic  and  procedure  which  is  illustrated  under  Pro- 
duction Accounting  and  assume  the  results  of  the  Development  period, 
as  shown  by  Summaries  of  Ledger  Accounts  to  be,  as  follows: 

SUMMARY  OF  OPERATING  TRANSACTIONS  FOR  PERIOD  OF 
DEVELOPMENT  OPERATIONS 

Liabilities  Incurred 

Labor  Employed $  80,000. 00 

Material  and  Supplies  Purchased 70 ,  000 .  00 

Expense  Vouchers  Audited 60,000. 00 

Taxes  Accrued 20,000. 00 

Accident  Insurance  Accrued 10,000.00 

Refunds  and  Discounts 500 .  00 

Total $240,500.00 

Cash  Received  and  Disbursed 

Received  from  Treasurer $240,000. 00 

Received  from  Refunds  and  Discounts 500. 00     $240 , 500 .  00 

Disbursed  to  Liquidate  Liabilities 195,000. 00 

Liabilities  Liquidated 
Accounts  Payable: 

Labor $70,000.00 

SuppUes 60,000.00 

Expense  Vouchers 50,000.00     $180,000.00 

Reserves  Liquidated 

Reserve  for  Taxes $10,000. 00 

Reserve  for  Accidents 5,000.00     $  15,000.00 

Charges  to  Operations 

Labor $80,000.00 

Supplies 50,000.00 

Expense  Vouchers 60,000. 00 

Taxes  Accrued 20,000.00 

Accident  Insurance  Accrued 10,000.00     $220,000.00 


28 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


All  the  above  transactions  having  been  accounted  for  according  to 
principles  of  double  entry  bookkeeping,  a  statement  from  the  General 
Ledger  would  appear,  as  follows : 


Debits 

Credits 

Cash 

$  45,500.00 

$240,000.00 

20 

,000 

00 

Refunds  and  Discounts 

500.00 

Charges  to  Operations: 
Labor $80,000.00 

Reserve  for  Taxes 

10,000  00 

5,000.00 

Supplies...     50,000.00 

Accounts  Payable: 

Expense...      60,000.00 

Labor...   $10,000.00 

Taxes 20,000.00 

Supplies..     10,000.00 

Accidents.     10,000.00 

220 

000 

00 

Expense..     10,000.00 

30,000.00 

$285,500.00 

$285,500.00 

While  the  above  statement  would  probably  satisfy  the  Treasurer 
as  to  the  reality  of  disbursements  for  operations  and  would  give  an  ac- 
counting statement  of  the  condition  of  operations,  such  statement 
would  be  of  little  value  to  the  one  in  charge  of  operations  and  to  the 
Operating  Department  heads,  nor  does  it  give  the  necessary  information 
as  to  what  was  invested  in  property  development  and  what  in  construc- 
tion and  equipment,  which  information  is  absolutely  necessary  in  order 
to  properly  account  for  results  of  operations. 

Therefore,  there  must  be  created  ledger  accounts  for  Exploration 
and  Development,  Development  Overhead  and  Operating  Overhead, 
also  an  account  for  Construction  and  Equipment,  and  the  charges  to 
operation  must  be  segregated  and  distributed  to  these  general  accounts 
and  to  each  sub-department  composing  these  general  departments. 

This  will  enable  cost  sheets  to  be  compiled  and  furnished  to  the  head 
of  each  department  of  operation,  and  allow  an  operating  balance  sheet 
to  be  drawn  which  will  show  the  actual  results  of  operations,  as  follows: 


Debits 

Exploration  and  Development  $  60,000.00 

Development  Overhead 80, 000. 00 

Operating  Overhead 20,000.00 

Construction  and  Equipment. .  60 ,  000 .  00 

Materials  and  Supplies 20,000.00 

Cash 45,500.00 

$285,500.00 


Credits 

Accounts  Payable $  30 ,  000 .  00 

Reserve  for  Taxes 10,000.00 

Reserve  for  Accidents . .  5 ,  000 .  00 

Refunds  and  Discounts  500.00 

Treasurer 240,000.00 


$285,500.00 


Determining  the  Net  Mine  Development. — It  is  necessary  to  put  the 
operation  results  in  the  form  above  illustrated  in  order  to  make  the  ac- 
counting statement  of  value  to  the  management  and  the  stockholders. 

However,  at  the  end  of  each  accounting  period  the  net  investment 
in  Mine  Development  must  be  transferred  to  the  Administrative  Records 
in  order  that  the  Administrative  Department  may  have  the  record  of  the 


CAPITAL— DEVELOPMENT  AND  EQUIPMENT  29 

net  property  investment  for  the  period  ended  and  in  order  that  the  oper- 
ating records  for  the  new  period  contain  only  the  information  applicable 
to  each  operating  period. 

Therefore,  a  closing  account  entitled  Mine  Development  is  created 
and  the  amounts  of  the  period's  charges  to  the  development  accounts  of 
Exploration  and  Development,  Development  Overhead,  and  Operating 
Overhead  are  charged  into  this  Mine  Development  Account,  and  the 
amount  of  the  period's  credits  of  Refunds  and  Discounts,  etc.,  is  credited 
to  this  account,  the  balance  of  which  is  the  net  investment  in  Mine 
Development  without  depreciation. 

Depreciation  of  Development  Equipment. — It  is  evident  that  the  mine 
development  investment  should  include  a  certain  amount  of  Depreciation 
of  Equipment  as  the  life  of  the  equipment  is  being  shortened  by  opera- 
tions and  also  as  a  rule  considerable  of  the  development  equipment  must  be 
replaced  as  soon  as  the  property  becomes  a  producer.  For  these  reasons 
the  est  imated  life  of  the  development  equipment  is  determined  to  be  usually 
from  three  to  five  years,  and  a  proportionate  amount  of  the  equipment 
investment  written  off  as  depreciation  by  creating  a  reserve  for  deprecia- 
tion, as  follows: 

Depreciation $12,000.00 

To  Reserve  for  Depreciation $12,000.00 

One-fifth  of  the  total  investment  in  mine  equipment 
considered  depreciated  by  the  year's  operations. 

The  amount  of  this  depreciation  charge  is  then  closed  to  Mine  Develop- 
ment and  the  balance  of  the  Mine  Development  Account  represents  the 
net  investment  in  mine  development  for  the  period. 

Statement  of  Development  Operations  Before  Closing  to  Treasurer's 
Account. — A  statement  taken  from  the  Development  General  Ledger  after 
the  above  adjustments  have  been  made,  would  show  the  condition  of 
Development  operations,  as  follows: 

Statement  of  Development  Operations  at  Close  of  Year  Before  Closing  to 

Treasurer 

Mine  Development $179,500.00     Accounts  Payable $  30.000.00 

Construction    and     Equip-                             Reserve  for  Taxes 10,000. 00 

ment 60,000. 00  Reserve  for  Depreciation.. .  20,000.00 

Materials  and  Supplies 20,000.00     Reserve  for  Accidents 5,000.00 

Cash 45.500.00     Treasurer 240,000.00 


$305,000.00  $305,000.00 


Closing  Mine  Development  Investment  to  Treasurer. — A  copy  of  the 
condition  of  development  operations  taken  from  the  ledger,  as  shown  by 
the  above  statement,  is  delivered  to  the  Treasurer  and  the  amount  of  the 
Mine  Development  which  is  to  be  transferred  to  the  Administrative 


30  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

records  is  charged  to  the  Treasurer  on  the  Operating  Books  by  entry,  as 
follows : 

Treasurer $179,500.00 

To  Mine  Development $179,500.00 

Amount  of  investment  in  mine  development  during 
year  1908  transferred  to  Treasurer's  records. 

The  transfer  of  the  Mine  Development  investment  for  the  period  to 
the  Treasurer  leaves  the  operating  records  clear  for  the  new  period,  as 
shown  by  the  following  statement: 

Statement  of  Development  Operations  on  January  1,  1909,   After  Closing 

for  Year 

Construction     and     Equip-                             Reserve  for  Depreciation.. .  $20,000.00 

ment $60,000.00     Reserve  for  Taxes 10,000.00 

Materials  and  Supplies 20 ,  000 .  00     Reserve  for  Accidents 5 ,  000 .  00 

Cash 45,500.00     Accounts  Payable 30,000.00 

Treasurer 60,500.00 


$125,500.00  $125,500.00 


The  investment  in  Construction  and  Equipment  is  not  transferred 
to  the  Treasurer  as  this  investment  along  with  the  reserve  for  depreciation 
must  be  carried  on  the  Operating  Books,  in  order  that  the  proper  charges 
for  replacements  of  equipment  may  be  made  against  the  depreciation 
reserve. 

Administrative  Accounting. — The  head  of  the  Administrative  Ac- 
counting Department  during  the  development  stage  of  a  mining  venture 
is  generally  the  Treasurer  and  the  Administrative  Accounting  is  done  by 
accountants,  bookkeepers  or  clerks,  under  his  direction.  The  personnel 
of  the  department  depending,  of  course,  on  the  volume  of  business. 

Statement  of  Business  at  Beginning  of  Development. — At  the  close 
of  promotion  and  beginning  of  development,  the  statement  of  the  condi- 
tion of  the  business,  as  shown  by  Treasurer's  books  was,  as  follows: 

Mine  Property $108,803.50     Capital  Stock $350,000.00 

Cash 241,196.50 

$350,000.00  $350,000.00 

We  will  assume  the  summary  of  the  administrative  business  trans- 
acted during  the  development  period  was,  as  follows: 

Cash  Advanced  to  Operations $240,000. 00 

Treasurer's  Office  Expense 2,600.00 

Secretary's  Office  Expense 1 ,  800 .  00 

Legal  Fees  and  Expense 1 ,  750 .  00 

Cash  Borrowed  by  Note 10,000.00 

Interest  on  Note  for  Six  Months  at  6  Per  Cent 300 .  00 


CAPITAL— DEVELOPMENT  AND  EQUIPMENT  31 

These  transactions  having  been  recorded  and  accounted  for  in  accor- 
dance with  the  principles  of  double  entry  bookkeeping,  and  the  accounting 
procedure  outlined  under  Production  Accounting  would  give  a  statement 
from  the  Treasurer's  books,  as  follows: 

Statement  op  Administrative   Operations  at  End   of  Development    Period 
Before  Adjusting  Accounts 

Mine  Property $108,803.50     Capital  Stock $350,000.00 

Cash 4,746.50     Notes  Payable 10,000.00 

Treasurer's  Office  Expense..         2 ,  600 .  00 
Secretary's  Office  Expense. .         1 ,  800 .  00 

Legal  Fees  and  Expense 1 ,  750 .  00 

Interest  Paid 300.00 

Operating  Account 240,000.00  

$360 , 000 . 00  $360,000.00 

Administrative  Mine  Development. — The  Administrative  investment 
in  Mine  Development  is  the  amount  of  the  Administrative  expense  during 
the  development  period.  In  order  to  show  this  investment  for  the  period 
a  ledger  account  is  created  and  named  General  Development,  and  the 
amount  of  the  Administrative  expense  is  closed  into  it,  as  follows : 

General  Development $6,450. 00 

To  Treasurer's  Office  Expense $2,600.00 

Secretary's  Office  Expense 1 ,  800 .  00 

Legal  Fees  and  Expense 1 ,  750 .  00 

Interest 300. 00 

Closing  the  Administrative  Expense  for  Mine  Development 

during  year  1908  into  General  Development  Account. 

Crediting  Operations  with  Mine  Development. — The  amount  of  the 
Mine  Development  for  the  period  as  shown  by  the  Operating  Ledger 
and  which  was  charged  to  the  Treasurer  on  the  Operating  Books  must  be 
taken  up  on  the  Administrative  Books  and  the  Operating  Account 
credited.  This  is  done  by  a  journal  entry  for  posting  to  the  Ledger,  as 
follows: 

Mine  Development $179,500.00 

To  Operating  Account $179,500.00 

Amount    of     Mine     Development    for    year    ending 

12-31-08  as  shown  by  Operating  Statement  for  year  1908. 

The  records  now  are  in  condition  to  give  a  statement  of  Administrative 
Operations  at  end  of  the  development  period  after  adjusting  accounts,  as 
follows: 

Mine  Property $108,803.50     Capital  Stock $350,000.00 

Mine  Development 179,500. 00     Notes  Payable 10,000. 00 

General  Development 6 ,  450 .  00 

Cash 4,746.50 

Operating  Account 60,500.00 

$360,000.00  $360,000.00 


32  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

This  gives  the  condition  of  the  Administrative  end  of  the  business  in  the 
necessary  form  before  absorbing  the  results  of  the  Operating  Department. 

In  order  to  make  a  complete  statement  of  the  business  it  is  necessary 
to  enter  in  the  Administrative  Journal  the  debit  and  credit  balances  of 
the  Operating  Ledger,  as  shown  by  the  Statement  of  Development 
Operations  on  January  1,  1909,  after  closing  for  year. 

Having  entered  these  debit  and  credit  balances  on  the  Administrative 
Journal  and  opened  up  accounts  in  the  Administrative  Ledger  to  take 
care  of  the  operating  debits  and  credits,  except  the  balance  of  the  Treas- 
urer's Account  which  is  credited  to  the  Operating  Account  in  the 
Administrative  Ledger,  would  show  the  condition  of  the  business,  as 
follows: 

Statemknt  op  the  Condition  of  the  A.  B.  C.  Mining  Company  as  of 

December  31,  1908 

Mine  Property $108,803.50     Capital  Stock $350,000.00 

Mine  Development 179,500.00     Notes  Payable 10,000.00 

General  Development 6 ,  450 .  00     Accounts  Payable 30 ,  000 .  00 

Construction     and     Equip-                             Reserve  for  Taxes 10,000.00 

ment 60,000.00     Reserve  for  Accidents 5,000.00 

Materials  and  Supplies 20 ,  000 .  00  Reserve  for  Depreciation. . .  20 ,  000 .  00 

Cash 50,246.50 

Mine $45,500.00 

Treasurer..       4,746.50 


$425,000.00  $425,000.00 

The  Development  Stage. — A  mine  is  in  the  development  stage  as 
long  as  the  net  returns  from  ore  shipments,  plus  the  net  value  of  the  ore 
in  the  mine,  is  equal  to  or  is  less  than  the  investment  in  property  equip- 
ment and  development.  Some  mines  never  get  beyond  the  development 
stage,  and  the  ore  that  is  encountered  in  development  operations  is 
shipped  as  long  as  the  net  return  is  in  excess  of  the  transportation, 
smelting  and  selling  costs,  or  as  long  as  it  gives  a  return  in  excess  of  the 
actual  development  expense  that  would  be  incurred  in  case  no 
ore  shipments  were  made. 

While  a  mine  in  the  development  stage  may  not,  especially  where  its 
ore  deposits  are  proven  by  diamond  or  churn  drilling,  have  any  production 
during  the  development  stage,  nevertheless  it  is  more  often  the  case 
that  the  development  work  when  done  by  shafts,  drifts  and  tunnels 
produces  a  certain  amount  of  ore  which,  if  it  will  give  a  small  profit 
above  the  expense  after  leaving  the  mine,  is  shipped.  Also,  in  most 
cases  all  ore  in  place  that  will  bring  a  profit  after  it  leaves  the  mine, 
sufficient  to  pay  for  its  extraction  and  leave  a  surplus  with  which  to 
carry  on  exploration  and  development  in  barren  ground,  is  generally 
mined  during  the  development  stage  in  order  to  make  the  mine  pay  for 
its  development  with  as  little  expenditure  of  the  original  investment  as 


CAPITAL— DEVELOPMENT  AND  EQUIPMENT  33 

possible,  which  may  be  conserved  for  equipment,  etc.,  upon  the  mine 
being  proven. 

Development  Production  Accounting. — When  production  is  carried 
on  by  a  mine  in  the  development  stage  the  production  and  expense 
accounts  necessary  to  properly  account  for  Mine  and  Smelter  Production, 
Sales  of  Metals  and  Receipts  from  Sales,  as  shown  on  the  Schedule  of 
Accounts,  3  and  11,  will  have  to  be  created  and  carried  in  the  ledger,  and 
the  accounting  procedure  followed  as  shown  in  Production  Accounting. 

At  the  end  of  the  development  period  or  year  in  order  to  determine 
whether  or  not  a  profit  or  loss  resulted  from  production,  the  production 
expense  accounts  and  the  production  credit  accounts  are  closed  into 
the  Development  Returns  Account,  as  follows: 

Development  Returns  Account 

Credits 

Copper  Sales  Deliveries $50 ,  525 .  00 

Ore  and  Bullion  on  Hand 22,690.00 

Gold  and  Silver  Sales 2,875.00 

Gross  Development  Returns $76,090.00 

Debits 

Ore  Transportation $  1 ,009. 00 

Smelting 15,425.00 

Bullion  Freight  and  Refining 7,640.00 

Selling 1,001.00 

Total  Development  Production  Expense $25,075.00 

Net  Development  Returns $51,015.00 

Whatever  profit  is  obtained  from  the  development  production,  as 
shown  by  the  Development  Returns  Account  is  credited  to  the  Mine 
Development  Account,  thereby  closing  out  the  Development  Returns 
Account. 

On  account  of  all  operating  cash  receipts,  except  for  refunds  and 
discounts,  being  advances  by  the  Treasurer,  it  is  necessary  that  the 
production  receipts  as  received  by  the  Treasurer  be  entered  in 
the  Administrative  Cash  Book  crediting  the  Operating  Department  as 
follows . 

Cash $50,525.00 

To  Operating  Account $50,525.00 

Proceeds  of  Sales  Nos.  1  to  15  of  copper. 

The  Operating  Journal  entry  to  make  the  necessary  record  on  its 
books  to  cover  the  amount  received  by  the  Treasurer  for  the  Operating 
Account  would  be: 

Treasurer $50,525.00 

To  Due  for  Copper  Shipped $50,525.00 

Amount  of  cash  received  by  the  Treasurer  for  sales  of 

copper  Nos.  1  to  15  inc. 

3 


CHAPTER  V 

CAPITAL— REORGANIZATION  OF  DEVELOPMENT 

When  a  development  company  has  been  organized  to  carry  on  the 
exploration  and  development  of  a  mine  property,  such  company,  upon 
the  property  being  proven  to  be  a  mine,  is  generally  superceded  by  a 
mining  company  with  a  capital  sufficient  to  take  up  the  stock  of  the 
development  company  at  its  proved  value  and  to  install  all  needed 
improvements  and  additions  to  equip  and  to  give  the  necessary  working 
capital  that  will  be  required  to  carry  on  production. 

Determining  the  Capitalization. — At  this  time  the  value  of  the  mine 
property  must  be  determined  by  competent  engineers  and  geologists  in 
accordance  with  regulations  of  the  Treasury  Department  governing 
discovery  value,  and  if  such  value  is  in  excess  of  the  actual  investment  the 
additional  value  may  be  capitalized.  On  account  of  the  present  Federal 
Tax  Law  the  obtaining  of  the  proper  amount  of  capitalization  is  very 
important. 

The  accountant  should  be  familiar  with  the  Federal  Tax  Laws  and 
the  Treasury  Department's  requirements  and  should  work  in  close  con- 
junction with  the  engineer  and  examine  his  estimates  to  see  that  they 
meet  the  requirements  of  the  federal  tax  law  as  well  as  take  advantage  of 
the  privileges  that  the  State  and  County  Tax  Laws  allow. 

Before  taking  the  Engineer's  estimated  value  of  the  mine  property 
upon  the  books,  the  accountant  should  examine  the  estimate  carefully 
to  see  that  it  contains  in  proper  form  information,  as  follows : 

(a)  The  total  dry  tonnage  of  proven  and  probable  commercial  ore 
that  has  been  discovered. 

(b)  The  commercial  mineral  contents  of  discovered  ore. 

(c)  The  recoverable  and  marketable  contents  of  the  ore. 

(d)  The  cost  of  recovery  and  of  marketing  the  recoverable  contents. 

(e)  The  prices  to  be  received  for  the  recoverable  contents. 
(/)  The  time  required  to  mine  and  market  the  ore. 

(g)  The  rate  of  interest  to  be  allowed  in  determining  the  present 
worth  of  the  mine  as  of  any  certain  date. 

The  last  two  factors  should  be  in  accord  with  the  tables  published  by 
H.  D.  Hoskold,  which  are  acceptable  to  the  Federal  Government. 

Another  important  matter  to  be  determined  is  the  amount  of  addi- 
tional capital  that  will  be  necessary  to  take  care  of  new  equipment  and 

34 


CAPITAL— REORGANIZATION  OF  DEVELOPMENT  35 

furnish  working  capital  for  production  operations.  This  must  be  such 
as  to  meet  the  requirements  of  each  individual  case.  However,  we  will 
assume  that  in  this  instance  the  facts  are,  as  follows: 

Additional  Value  of  Mine  Property $1 ,  050 .  000 .  00 

Additional  Equipment  Necessary 350,000. 00 

Additional  Working  Capital  Necessary 350,000.00 

Additional  Emergency  Capital  Desired 350,000.00 

Additional  Capital  Necessary $2,110,000.00 

Development  Capital 350 ,  000 .  00 

Necessary  Capitalization  of  Mining  Company $2,450,000.00 

This  would  require  that  the  mining  company  have  a  capitalization  of 
seven  times  the  amount  of  the  development  company. 

In  case  the  par  value  of  the  stock  were  to  be  the  same,  the  mining 
company  would  need  seven  times  the  number  of  shares  of  stock  of  which 
one-seventh  would  be  required  to  take  up  the  stock  of  the  development 
company,  three-sevenths  to  take  up  the  additional  value  of  the  mine 
property,  and  three-sevenths  of  the  shares  to  be  sold  to  the  stockholders 
for  cash  to  furnish  the  capital  to  take  care  of  additional  equipment  and 
working  capital  necessary  for  production. 

Therefore,  each  stockholder  of  the  development  company  would 
receive  upon  the  surrender  of  his  development  stock  four  shares  of 
mining  stock  for  each  share  of  development  stock  owned,  and  would  be 
allowed  to  subscribe  for  three  additional  shares  of  mining  stock  at  par. 

Reorganization  Accounting. — After  the  legal  procedure  of  the  reorgani- 
zation has  been  completed  the  record  of  the  change  from  the  development 
company  to  the  mining  company  must  be  made. 

At  this  time  a  new  set  of  general  books  in  which  to  record  the  trans- 
actions of  the  new  company  are  advisable,  although  it  is  not  necessary. 
However,  there  must  be  a  new  set  of  stock  records. 

In  either  case  it  is  necessary  to  record  the  new  capitalization  upon  the 
books  which  are  to  be  used,  as  follows: 

Unissued  Capital  Stock 

A.  B.  C.  Mining  Co $2,450,000.00 

To  Capital  Stock  Authorized 

A.  B.  C.  Mining  Co $2,450,000.00 

The  amount  of  the  capitalization  of  the  A.  B.  C. 
Mining  Co.  which  is  to  absorb  the  A.  B.  C.  Develop- 
ment Co.,  as  per  resolutions  of  the  stockholders  of 
the  A.  B.  C.  Development  Co.,  adopted  at  meeting 
held  November  5,  1905,  and  as  per  amended  Articles 
of  Incorporation  dated  December  15,  1905. 

As  the  stockholders  of  the  development  company  surrender  their 
stock  in  exchange  for  shares  of  mining  company  stock,  at  ratio  of  one  for 
four,  entries  would  be  made  closing  out  the  Development  Capital  Stock 
Account  and  charging  additional  value  Mine  Property  Account,  so  that 


36  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

when  all  the  development  stock  had  been  exchanged  the  total  charges 
and  credits  would  be,  as  follows: 

A.  B.  C.  Development  Stock $    350,000.00 

Additional  Value  Mine  Property 1 ,  050 ,  000 .  00 

To  Unissued  Capital  Stock  A.  B.  C.  Mining  Co.  $1 ,  400 ,  000 .  00 

Also  as  the  rights  of  each  of  the  shares  of  the  development  stock  are 
exercised  to  subscribe  for  three  shares  of  mining  stock  at  par,  entries  must 
be  made  to  close  out  the  unsubscribed  mining  stock  giving  total  charges 
and  credits  when  all  stock  has  been  subscribed  as  follows : 

Cash $1,050,000.00 

To  Unissued  Capital  Stock $1 ,  050 ,  000 .  00 

This  would  close  out  the  unissued  capital  stock  of  the  mining  company 
and  complete  the  record  of  the  reorganization  of  the  development 
company. 

Condition  of  Business  After  Reorganization. — A  statement  taken 
from  the  Administrative  Ledger  after  reorganization  would  appear,  as 
follows : 

Mine  Property $1 , 158,803 . 50 

Mine  Development 179,500. 00 

General  Development 6 ,  450 .  00 

Cash 1,054,746.50 

Operating  Account 60 ,  500 .  00 

$2,460.000.00 

Capital  Stock $2,450,000.00 

Notes  Payable 10,000.00 

$2,460,000.00 

while  a  statement  taken  from  the  Operating  Ledger  would  be,  as  follows: 

Statement  of  Operating  Ledger  After  Reorganization 

Construction  and  Equipment $  60 ,  000 .  00 

Materials  and  Supplies 20,000.00 

Cash 45,500.00 

$125, 500. 00 

Reserve  for  Depreciation $  20,000.00 

Reserve  for  Taxes 10,000.00 

Reserve  for  Accidents 5 .  000 .  00 

Accounts  Payable 30,000.00 

Treasurer 60,50000 

$125, 500  00 

and  a  combined  statement  showing  the  condition  of  the  business  would 
be,  as  follows: 


CAPITAL— REORGANIZATION  OF  DEVELOPMENT 


37 


Statement  of  Condition  of  A.  B.  C.  Mining  Co.  After  Reorganization 


Mine  Property $1 ,  158, 803 . 50 

Mine  Development 1 79 ,  500 .  00 

General  Development ...  6 ,  450 .  00 
Construction  and  Equip- 
ment             60,000.00 

Materials  and  Supplies . .  20 ,  000 .  00 

Cash 1,100,246.50 

Mine..   $       45,500.00 

Treas. .     1,054,746.50  

$2,525,000.00 


Capital  Stock $2,450,000.00 

Notes  Payable 10,000.00 

Accounts  Payable 30 ,  000 .  00 

Reserve  for  Taxes 10 ,  000 .  00 

Reserve  for  Accidents ...  5 ,  000 .  00 

Reserve  for  Depreciation  20 ,  000 .  00 


$2,525,000.00 


This  takes  care  of  all  the  accounting  matters  of  importance  preceding 
production,  that  are  not  covered  under  Production  Accounting. 


342595 


SECTION  2 
OPERATING  PRODUCTION 


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Acct. 

General  Ledger  Accounts 

Acct. 
No. 

Subsidiary  Ledger  Accounts 

No. 

NAME 

NAME 

Cash  Accounts: 

1 

Cash  at  Mine. 

2 

Treasurer,  Current  Year. 

Disbursement  Accounts: 

3 

Labor. 

4 

Bills  Audited. 

5 

Supplies  Issued. 

6 

Shops. 

See  Cost  Accounts. 

7 

Power. 

See  Cost  Accounts. 

# 

Accident  Liability. 

# 

Taxes  Accrued. 

# 

Bullion  Freight  and  Refining  Accrued. 

1 

Selling  Expenses  Accrued. 

8 

Depreciation  of  Equipment. 

9 

Depletion  of  Mines. 

10 

Current  Accounts  Payable. 

57 

Pay-rolls. 

58 

Vouchers. 

11 

Bullion  Freight  and  Refining  Not  Due. 

12 

Selling  Expense  Not  Due. 

13 

Reserve  for  Accidents. 

14 

Reserve  for  Taxes. 

15 

Reserve  for  Depreciation  of  Equipment. 

16 

Reserve  for  Depletion  of  Mines. 
Expense  Accounts : 

17 

Exploration  and  Development. 

18 

Ore  Extraction. 

19 

Milling. 

20 

Transportation  of  Ore  and  Concentrates. 

21 

Smelting. 

22 

Operating  Overhead. 

23 

Bullion  Freight  and  Refining 

24 

Selling. 

25 

Total  Operating  Expense. 

Prepaid  Expense  Accounts: 

26 

Repairs. 

See  Cost  Accounts. 

27 

Replacements. 

See  Cost  Accounts. 

28 

Unexpired  Insurance. 

29 

Suspense. 

Asset  or  Capital  Accounts: 

30 

Construction  and  Equipment. 

See  Cost  Accounts. 

31 

Materials  and  Supplies. 

See  Cost  Accounts. 

32 

Accounts  Receivable. 

142 

Various  Persons. 

143 

D.  A.  C.  Co. 

144 

Lamps. 

Production  Accounts 

145 

Each  Debtor. 

Ores  on  Hand  at  Cost. 

153 

Ores  at  Mine. 

33 

154 

Chart  of  Operating  Accounts 

Chart  III 

42 


Chart  op  Operating  Accounts 
Chart  III 


Acct. 

General  Ledger  Accounts 

Acct. 
No. 

Subsidiary  Ledger   Accounts 

No. 

NAME 

NAME 

154 

Ores  at  Mill. 

34 

Ores  in  Process. 

155 

Ores  at  Smelter. 

35 

Unsold  Metal  at  Inventory. 

157 

Unsold  Copper  in  Transit. 

35-^1 

Gold  and  Silver  at  Inventory. 

158 

Unsold  Refined  Copper  on 

35-B 

Special  Ores  at  Inventory. 

Hand. 

36 

Ore  and  Bullion  Account. 

Sales  Accounts: 

37 

Sold  Metal  in  Transit. 

38 

Undelivered  Sold  Metal. 

39 

Over-sales. 

40 

Future  Sales  Contracts. 

Receipt  Accounts: 

. 

41 

Due  for  Metal  Shipped. 

159 

Monthly  Sales  Deliveries. 

160 

Overs  and  Shorts. 

41-A 

Due  for  Gold  and  Silver. 

41-5 

Due  for  Special  Ore  Shipments. 

42 

Estimated  Loss  on  Deliveries. 

43 

Metal  Sales  Deliveries. 

43-A 

Gold  and  Silver  Sales. 

43-E 

Net  Special  Ore  Sales. 

44 

Refunds  and  Discounts. 

161 

Freight  Refunds. 

162 

Miscellaneous  Refunds. 

163 

Old  Material  Sales. 

164 

Uncalled   for    Checks   Can- 
celled. 

165 

Pay-roll     Deduction     Dis- 
counts. 

166 

Cash  Discounts. 

45 

Sales  Agent. 

170 

Commissions  and  Telegrams. 

171 

Freight. 

172 

Insurance. 

173 

Discounts. 

174 

Cathode  Allowances. 

175 

Excess   Freight   and   Insur- 
ance. 

176 

Net  Cash  Settlements. 

46 

Reserve  for  Loss  on  Deliveries. 

47 

Gross  Value  of  Production. 
General  Accounts: 

48 

Previous  Year's  Production. 

49 

Operating  Profit  and  Loss. 

50 

Treasurer,  Previous  Year. 

Chart  of  Operating  Accounts  (Continued) 

Chart  III 

43 


CHAPTER  VI 
OPERATING  GENERAL  ACCOUNTING 

PRODUCTION 

The  mining  operations  having  progressed  from  the  capital  to  the 
production  stage,  the  accounting  must  necessarily  be  expanded  and  made 
to  express  the  production  results  in  costs  and  earnings,  etc. 

As  the  production  operations  are  divided  into  Operation  and  Adminis- 
tration, the  General  Accounting  of  necessity  must  be  divided  likewise, 
and  as  the  principal  concern  of  Administrative  Accounting  is  the  result  of 
operations,  disposition  will  be  made  first  of  Operating  Accounting. 

BASIS  OF  ACCOUNTING 

Before  taking  up  the  Operating  Accounting  it  is  first  necessary  to 
determine  upon  what  basis  the  records  are  to  be  kept,  that  is  whether  on 
an  accrued  or  cash  basis. 

If  the  business  is  of  such  size  as  to  require  an  accounting  department, 
the  records  should  be  kept  upon  an  accrued  basis  in  order  that  complete 
and  accurate  costs  and  earnings  can  be  obtained,  and  that  the  accounting 
records  may  give  an  accurate  history  of  the  business  transactions  which 
can  not  be  obtained  when  the  records  are  kept  on  a  cash  basis. 

It  has  been  generally  accepted  that  the  accrued  basis  of  accounting 
is  most  satisfactory  and  desirable  in  mining,  and,  therefore,  the  account- 
ing illustrations  to  follow  will  be  upon  the  accrued  basis. 

Upon  such  a  basis  the  disbursement  liabilities  and  the  receipts  are 
taken  up  on  the  books  when  created  regardless  of  whether  or  not  they 
have  been  liquidated  by  cash  disbursements  or  cash  receipts. 

When  the  basis  of  accounting  has  not  been  determined  beforehand 
part  of  the  accounting  may  be  kept  on  an  accrued  basis  and  part  on  a  cash 
basis  which  does  not  give  satisfactory  records  or  results  and  may  result 
in  the  payment  of  unnecessary  federal  taxes  should  the  tax  rate  be 
changed. 

OPERATING  PRODUCTION  ACCOUNTING 

The  Operating  Accounting  Department  takes  the  cash  furnished  by 
the  Administrative  Department  and  shows  it  as  it  is  invested  in  materials, 
machinery  and  wages  for  men  with  which  the  property  is  developed  and 
equipped  and  the  product  is  produced,  sold  and  converted  back  again 
into  cash  which  is  delivered  to  the  Administrative  Department  to  carry 
on  future  operations,  part  to  the  stockholders  as  dividends  from  earnings, 

44 


OPERATING  GENERAL  ACCOUNTING  45 

part  as  Depletion  and  Depreciation  Reserves,  or  as  Capital  Returned 
Dividends,  and  part  to  Surplus  as  a  reserve  to  take  care  of  enlarged  busi- 
ness demands  and  emergencies  or  for  investments,  all  of  which  is  illus- 
trated by  Charts  II  and  II-A. 

The  operating  accounting  system  must,  in  addition  to  being  built  upon 
the  principles  underlying  the  business,  be  based  upon  the  unit  principle 
so  as  to  be  sufficiently  flexible,  without  interfering  with  the  integrity  of 
the  system,  both  to  allow  of  the  expansion  necessary  to  take  care  of  nat- 
ural or  unnatural  growth  of  the  business  and  the  contraction  caused  by 
depletion,  change  of  operating  methods,  or  demoralization  of  the  metal 
markets,  as  well  as  to  be  sufficiently  fixed,  as  to  general  form  to  allow  of 
comparative  statements  being  made. 

Therefore,  having  determined  the  fundamental  principles  of  account- 
ing procedure,  as  here-in-before  set  forth  in  Chapter  II  and  having  in  mind 
the  purpose  so  to  record  the  transactions  and  operations  of  the  business 
as  to  obtain  a  true  and  intelligent  statement  of  the  condition  of  the  busi- 
ness and  the  results  of  operations  in  costs  and  earnings,  the  head  of  the 
Operating  Accounting  Department  must  be  the  one  to  determine  and  to 
direct  the  accounting  and  costing  of  a  mining  organization,  if  uniform 
and  efficient  results  are  to  be  obtained,  and  not  the  operating  depart- 
mental officials  who  are  usually  engrossed  in  the  details  of  production  and 
imbued  with  the  desire  of  showing  each  department  in  the  best  possible 
light. 

DIVISIONS  OF  PRODUCTION  ACCOUNTING 

The  Operating  Accounting  of  mining  production  operations  can  be 
more  readily  explained  if  divided  into: 
I.  General  Accounting, 
11.  Cost  Accounting  and  Statistics, 
III.  Economic  Accounting. 

The  Operating  General  Accounting  required  during  the  Capital  Stage 
of  development  of  the  property  is  concerned  with  the  recording  of: 

1.  Receipts  from  Treasurer, 

2.  Disbursements  for  Development, 

3.  Disbursements  for  Construction  and  Equipment, 

so  as  to  show  that  part  of  the  capital  invested  in  fixed  assets,  of  property, 
its  development  and  equipment.  However,  the  Operating  Accounting 
performed  during  production  has  to  do  with  that  part  of  capital  invested 
as  working  capital  in  its  five  stages  of: 

1.  Disbursements, 

2.  Production, 

3.  Sales, 

4.  Receipts, 

5.  Cash, 


46  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

as  shown  by  Chart  II-A;  also  with  the  segregating  and  arranging  of 
disbursements  so  as  to  allow  of  proper  costing,  and  the  detailing  of 
Production,  Sales,  Receipts  and  Cash,  so  as  to  show  at  regular  periods 
the  resulting  profit  or  loss  and  the  true  condition  of  operations. 

Cost  Accounting  is  the  analyzing  of  the  expense  chargeable  to  the 
Profit  and  Loss  Account  so  as  to  enable  the  determination  of  the  profit 
or  loss  of  each  product  for  each  division,  department  or  item  of  the 
business. 

Operating  Costing  is  the  showing,  for  each  period  of  operations,  the 
cost  of  each  element,  class  or  item  of  expense  for  each  product  per  produc- 
tion or  operation  unit,  for  each  department,  sub-department,  department 
unit  or  sub-department  unit,  so  as  to  guide  and  assist  the  manager  and 
each  department  head  to  ascertain  whether  or  not  efficiency  is  being 
obtained  in  the  operations. 

Cost  Accounting  will  be  dealt  with  separately  after  the  disposal  of 
Accounting. 

Economic  Accounting  is  the  recording,  analyzing  and  compiling  of 
production  and  cost  factors  so  as  to  show  production  losses  and  the  best 
economic  results  at  different  production  prices,   costs  and  recoveries. 

All  the  Operating  Accounting  and  Costing  should  be  subject  to  the 
supervision  and  direction  of  the  head  of  the  Accounting  Department. 
The  accounting  necessary  for  each  operating  or  production  department 
should  be  considered  as  a  separate  branch  or  department  of  the  Account- 
ing Department,  and  be  under  the  direct  supervision  of  an  accountant 
who  is  directly  responsible  to  the  head  of  the  Accounting  Department. 

OPERATING  CAPITAL 

Production  operations  require  sufficient  working  capital  in  the  form 
of  cash  to  take  care  of  operating  expenses  during  the  time  the  product 
is  produced  and  until  it  is  sold  and  payments  received  therefor,  also  with 
which  to  purchase  and  carry  in  stock  sufficient  supplies  to  enable  con- 
tinued and  efficient  operation. 

To  furnish  this  capital  to  operation,  advances  of  cash  are  made  by 
the  Treasurer  each  month  or  at  intervals,  the  same  as  in  the  development 
stage. 

STATEMENT  AT  BEGINNING  OF  PRODUCTION 

As  there  is  generally  a  certain  amount  of  production  during  the 
development  stage  before  the  mine  is  proven,  during  which  advances 
of  cash  are  made  to  the  operating  department,  and  certain  production 
accounts  are  created,  we  will  assume  that  during  this  period  there  was 
advanced  to  the  Operating  Department  $873,111.77,  and  that  the 
Administrative  Ledger  would  show  cash  as  that  much  less,  and  Operating 


OPERATING  GENERAL  ACCOUNTING  47 

Account  that  much  more,  and  that  a  statement  taken  from  the  Operating 
Ledger  at  the  beginning  of  Production  Operations  would  be,  as  follows: 

Statement  from  Operating  Ledger    at  Beginning  of  Production 

Debit  Balances 

Cash $    222,174.43 

Accounts  Receivable 4,862. 15 

Sold  Copper  in  Transit 641,617.92 

Due  for  Copper  Shipped $159,265.83 

Sales  Agent 64,555.93             94,709.90 

Due  for  Gold  and  Silver 6,719.69 

Ores  on  Hand  at  Cost 7,352 .  25 

Development  Production 648,970. 17 

Suspense 220.00 

Materials  and  Supplies 133,886. 59 

Construction  and  Equipment $285,466. 62 

Replacements 1 ,767. 22          287,233. 84 

$2,047,746.94 
Credit  Balances 

Ore  and  Bullion $     7,352.25 

Future  Sales 641,617.92         $648,970. 17 

Accounts  Payable 110, 147.03 

Bullion,  Freight  and  Refining  Not  Due 35,809. 13 

Selling  Not  Due 8,580.32 

Reserve  for  Accidents 42 ,  349 .  13 

Reserve  for  Taxes 42 ,  449 .  52 

Reserve  for  Depreciation 225 ,  829 .  87 

Treasurer 933,611 .  77 

$2,047,746.94 

The  mine  having  entered  the  production  stage,  all  operating  expense, 
including  the  exploration  and  development  that  is  continued  along  with 
ore  extraction,  is  chargeable  against  production. 

OPERATING  EXPLORATION  AND  DEVELOPMENT 

During  the  production  stage  it  is  customary  to  charge  all  expense  for 
exploring  the  ground  covered  by  the  Property  Account,  as  well  as  all 
expense  for  developing  proven  territory,  to  the  cost  of  current  production. 

Therefore,  the  operating  exploration  and  development  work  is 
considered  one  of  the  departments  of  production  expense.  However, 
if  exploration  work  is  done  on  properties  under  option  or  on  new  proper- 
ties not  yet  proven,  it  is  charged  to  a  separate  account  and  treated  as 
property  investment  the  same  as  was  done  during  the  development  stage 
of  the  original  property. 

The  amount  of  development  expense  is  usually  limited  to  a  certain 
figure  per  ton  of  ore  mined,  or  a  certain  number  of  feet  per  ton  of  ore 
mined,  and  this  limit  is  not  consistently  exceeded  unless  authority  has 
been  granted  the  mine  department  so  to  do. 


48  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

After  a  mine  has  entered  the  production  stage,  and  for  some  reason 
discontinues  production  but  continues  development,  the  amount  of 
development  may  be  changed  either  to  the  profit  and  loss  or  surplus 
account,  or  it  may  be  set  up  as  a  Deferred  Disbursement,  or  a  Prepaid 
Expense  and  apportioned  to  production  expense  after  production  has 
been  resumed  in  the  future,  and  report  of  such  disbursements  may  be 
so  made  in  making  returns  for  federal  income  tax. 

CAPITAL  DISBURSEMENTS  DURING  PRODUCTION 

The  only  capital  disbursements  made  by  the  Operating  Department 
when  a  property  has  entered  the  production  stage  are  for  new  equipment 
and  replacements  of  old  equipment.  However,  no  such  disbursements 
are  made,  except  within  certain  limits,  or  in  case  of  emergencies,  except 
upon  the  authority  of  the  board  of  directors.  Also,  as  a  rule,  each 
department  head  is  limited  in  the  amount  of  such  expenditures  that  he 
may  authorize  without  first  obtaining  the  approval  of  the  general 
manager. 

All  other  capital  expenditures,  such  as  investments,  purchase  of 
other  properties  and  equipment  and  development  of  other  properties 
are  made  either  by  the  Administrative  Department,  or  by  one  authorized 
so  to  do,  and  are  kept  separate  from  regular  equipment  and  development 
disbursements  for  the  producing  property. 

CHART  OF  OPERATING  PRINCIPLES 

As  a  guide  and  to  insure  completeness  and  uniformity  in  the  Operating 
Accounting  a  chart  should  be  drawn  to  show  the  principles  involved  in 
operating  accounting. 

This  chart  would  not  be  complete  for  the  business  but  would  illus- 
trate only  those  principles  underlying  the  accounting  of  the  Operating 
Department  which  is  concerned  only  with  Operating  Cash,  Disburse- 
ments, Production  Sales  and  Receipts,  the  Operating  Balance  Sheet, 
the  Operating  Profit  and  Loss  Account  and  the  connecting  account  with 
the  Administrative  Accounting  shown,  as  a  rule,  on  the  operating  books 
as  Treasurer. 

Such  a  chart  of  principles  is  shown  by  Chart  II-A. 

WORKING  FACTORS 

Having  established  the  Chart  of  Operating  Principles  it  is  then 
necessary  to  create  Charts  of  Operating  Accounts  in  conformity  with 
these  principles  that  will  properly  record  the  activities  of  the  different 
departments  of  operation.  Such  a  chart  is  shown  in  Chart  III  of  Operating 
Accounts.  This  chart  must  be  worked  out  so  as  to  give  sufficient  oper- 
ation information  and  act  as  control  accounts  for  the  Chart  of  Cost 


OPERATING  GENERAL  ACCOUNTING  '49 

Accounts  which  is  generally  created  at  the  same  time,  and  will  be  illus- 
trated under  Cost  Accounting. 

The  Chart  of  Operating  Accounts  having  been  established  there 
must  be  determined  a  Schedule  of  Charges  and  Credits  that  are  to  be 
made  to  these  accounts  in  order  to  insure  uniformity  and  accuracy  in 
the  compiling  of  the  data  of  business  and  operating  activity.  Such  a 
chart  must  be  made  to  meet  the  needs  of  each  business. 

Upon  having  determined  the  chart  of  accounts  and  schedule  of 
charges  in  conformity  with  the  principles,  it  is  then  necessary  to  outline 
the  accounting  procedure  and  to  create  forms  on  which  the  information 
is  to  be  reported  to,  and  on  which  it  is  to  be  recorded  in  the  accounting 
office. 

The  nature  of  this  procedure  and  the  character  of  these  forms  will 
be  illustrated  in  the  following  chapters,  but,  of  course,  will  vary  to  meet 
the  requirements  of  each  business. 


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50 


CHAPTER  VII 
OPERATING  DISBURSEMENTS 

The  Operating  Disbursements  of  production  consist  of  Current  or 
Actual,  Accrued  and  Deferred,  segregated  so  as  to  provide  for  proper 
accounting  and  costing,  as  shown  by  Chart  IV.  It  is  necessary  that  a 
complete  record  shall  be  made  of  all  actual  disbursements,  and  that 
this  record  shall  be  such  as  will  allow  a  ready  and  reliable  check  to  be 
obtained  at  the  end  of  each  accounting  period  by  the  one  in  charge  of 
the  Accounting  Department,  or  by  outside  auditors,  of  all  operating  and 
cash  disbursements. 

The  business  of  Mining  requires,  in  addition  to  the  disbursements 
of  Cash  to  meet  the  liabilities  of  operations,  the  direct  disbursement  or 
application  to  operations,  first,  of  Labor  as  shown  by  the  pay-rolls,  and 
second,  of  Expense  as  shown  by  the  Bill  of  Expense  entered  in  the  Bills 
Audited  Record,  and  third,  of  Materials  and  Supplies  to  operations,  as 
shown  by  the  Supplies  Issued  Record.  Therefore,  it  is  necessary,  in 
order  to  allow  a  ready  and  accurate  check  to  be  made  of  all  actual  dis- 
bursements, that  there  be  created  and  maintained  Direct  Disbursement 
Accounts,  as  shown  by  Chart  VI,  as  follows: 

Labor 

Bills  Audited 

Supplies  Issued 

The  Supplies  Issued  Account  is  supported  by  the  Supplies  Issued 
Record  and  the  signed  charge  tickets  which  enable  an  accurate  and  ready 
check  to  be  made  of  all  disbursements  from  the  Stores  of  Materials 
and  Supplies,  while  the  Labor  and  Bills  Audited  Accounts  are  supported, 
respectively  by  the  pay-rolls,  with  the  signed  statements,  and  the  Bills 
Audited  Record  with  the  receipted  vouchers,  and  enable  an  accurate  and 
ready  check  to  be  obtained  of  all  Cash  Disbursements  for  Labor,  Expense 
and  Purchases. 

These  three  Direct  Disbursement  Accounts  cover  all  actual  Operating 
Disbursements.  The  Indirect  Disbursement  Accounts  are  Power  and 
Shops   and   are   sub-divisions   of   the   Direct   Disbursement   Accounts. 

However,  as  the  records  are  to  be  kept  upon  an  accrued  basis  it  is 
necessary  to  show  also  the  Accrued  Disbursements  which  consist  of 
Accrued  Expense  as  covered  by  Accrued  Accounts  shown  by  Chart  IV. 
In  practical  accounting  it  is  seldom  that  any  debit  Accrued  Disburse- 

51 


52  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

ment  Accounts  are  carried  on  the  books.  Instead  of  debiting  an  Accrued 
Disbursement  Account  and  crediting  an  Accrued  Account  Payable  at 
the  end  of  each  accounting  period,  in  order  to  show  an  accrued  liability, 
and  then  closing  the  Accrued  Disbursement  Account  by  a  credit  and 
debiting  the  proper  expense  account,  in  order  to  obtain  the  accrued 
expense  applicable  to  each  operating  period,  the  credit  to  each  Accrued 
Account  Payable  is  offset  by  a  debit  direct  to  the  proper  expense  account. 
This  obtains  the  results  desired  and  saves  bookkeeping. 

In  addition  to  the  Actual  and  Accrued  Disbursements  there  are  the 
Deferred  Disbursements  consisting  of  charges  for  Depreciation  of 
Equipment  and  Depletion  of  Mines.  These  charges  are  made  upon  the 
operating  books  by  journal  entry  and  are  transferred  to  the  Administra- 
tive Books  through  the  Treasurer's  Account  and  are  the  amounts  which 
represent  the  capital  returned  by  production  and  are  not  included  in 
Operating  Expense,  but  are  charged  direct  to  the  Income  Account  and 
shown  as  a  deduction  from  Gross  Income. 

The  Deferred  Disbursements  should  not  be  confused  with  Deferred 
Expense  charges  which  are  herein  considered  as  Prepaid  Expense. 

ACTUAL  DISBURSEMENT— DIRECT 

Actual  Disbursements  consist  of  Direct  and  Indirect  Disbursements. 
The  Direct  Disbursements  are  Labor,  Bills  Audited,  and  Supplies  Issued; 
while  the  Indirect  Disbursements  consist  of  Labor,  Supplies  and  Expense 
charges  to  Shops  and  Power  Plants. 

LABOR 

The  Labor  Disbursement  Account  showing  the  total  amount  of 
all  pay-rolls  for  labor  employed  and  for  which  operations  must  account 
is  created  and  supported,  as  follows: 

Employment  of  Labor. — Proper  authorization  of  all  labor  employed 
must  be  made  before  the  name  of  an  employee  is  entered  upon  the  pay- 
rolls. The  applicant,  after  making  application  for  employment,  is  given 
by  the  employing  agent,  an  Engagement  Slip,  which  the  applicant 
signs  in  the  presence  of  the  employing  agent  and  which  he  then  pre- 
sents to  the  physician,  by  whom  he  is  examined  to  determine  whether  or 
not  he  is  physically  qualified  for  the  work  for  which  he  has  been  engaged. 

The  physician  makes  a  thorough  examination  of  the  applicant  and 
records  his  findings.  If  the  applicant  proves  to  be  unfit,  the  physician 
takes  up  the  engagement  slip,  marks  on  it  "rejected,"  and  returns  it  to 
the  employment  office.  If  recommended,  the  applicant  again  signs  the 
engagement  slip  on  the  observe  side,  in  the  presence  of  the  physician,  and 
presents  the  approved  card  to  the  timekeeper,  who  requires  him  to  fill 
out  and  sign  an  Employment  Card,  and  who  gives  the  applicant  an 


OPERA  TING  DISB  URSEMENTS 


53 


Identification  Card  to  be  by  him  presented  to  the  shifter  or  the  person 
who  is  to  be  responsible  for  his  work  and  who  is  to  report  the  distribution 
of  his  time.  The  employee  signs  the  Identification  Card  in  the  presence 
of  the  person  who  is  to  report  his  time  and  the  man  is  placed  at  work. 


LABOR 


/reference 
Inquiry 


Application 
Carol 


Medical 
EKamination 


Employment 
Record 


Identification 
Slip 


Accident 
Reports 


Daily  Time 
Reports 


Compensation 
Claims 


Check  of Pai/y 
Time  Reports 


Discharge 
Reports 


Pay  Roll 
Record 


Employee 's 
Order  Slip 


Check  of 
Pay  Rolls 


Time 
Statement 


Pay  Roll 
Check 


Journal  Entry 


Summary  of 
Pay  Rolls 


Chart  V. 

The  card  is  then  returned  to  the  Employment  agent  by  the  shifter  or 
foreman  and  the  employee's  name  is  entered  in  the  Daily  Time  Book. 

Where  a  report  is  obtained  on  all  men  employed,  an  inquiry  is  sent  out 
to  last  employer  and  a  note  made  upon  the  application  card  of  the  answer 
received. 

Labor  Reports. — Each  person  having  direct  supervision  of  labor 
reports  the  time  of  each  employee,  each  day,  on  going  off  shift  by  turning 


54  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

in  to  the  timekeeper  his  Daily  Time  Book  in  which  a  record  of  the  time  of 
each  man  is  kept  as  follows: 

Opposite  each  name  shown  on  the  time  book,  in  the  space  under  each 
date  column,  for  each  full  day  worked,  a  vertical  line;  for  each  part  of 
a  day  worked,  the  proper  fraction;  opposite  each  name  in  the  proper 
column  for  each  day  an  employee  did  not  work,  a  cipher;  opposite  the 
name  of  an  employee  discharged  or  quitting,  a  long  line,  the  line  to  begin 
after  the  last  shift  reported;  and  two  short  lines  after  the  last  shift  worked 
of  a  man  transferred. 


Vnr 

UNDERGROUND  DAILY  LABOR  REPORT 

192 

Total 

Shnft                                             Date 

Rate  per 
Day 

5.60 
6.10 
6.35 
6.60 
Totals 

SHIFTER'S  NAME 

J.Geldart    W.Lambert      E.Powe          F.Stone 

Shifts               Shifts               Shifts               Shifts 

Form  7. 

Check  of  Daily  Labor  Reports. — When  the  force  justifies  a  day  and 
night  timekeeper,  each  man  must  report  to  the  timekeeper  when  going 
on  shift  and  receive  a  numbered  check  which  he  returns  to  the  timekeeper 
on  coming  off  shift.  The  timekeeper,  each  day,  makes  a  summary 
(Forms  7,  8,  and  9)  showing  the  number  and  wage  of  men  under  each 
supervising  head,  as  shown  by  the  time  books  turned  in  to  him  by  the  dif- 
ferent bosses,  which  he  checks  against  the  segregation  slips  turned  in, 
and  against  his  record,  all  of  which  must  balance.  A  copy  of  the  summary 
for  each  department  is  delivered  to  each  department  head,  and  copies 
of  the  complete  summary  are  delivered  to  the  Manager  and  to  the 
Accounting  Office.  At  the  end  of  each  pay  period,  new  daily  time  books 
are  written  up  for  all  bosses  by  the  timekeeper,  the  names  in  the 
books  being  grouped  as  to  rates  and  arranged  alphabetically. 

Record  of  Labor  Reports. — A  record  of  all  the  time  reports  is  made  on 
the  Pay-rolls,  a  roll  being  kept  for  each  department,  also  for  each  shop, 
and  for  each  surface  division.     The  total  shifts  of  all  rolls  must  balance 


OPERATING  DISBURSEMENTS 


55 


with  the  total  shifts  of  the  time  books,  as  well  as  with  the  total  shifts  of  all 
segregations,  when  checked  each  day  and  at  the  end  of  each  accounting 
period. 


Surface  Daily  Labor  Report 

SHATTUCK  ARIZONA  COPPER  CO. 

192 

CLASS 

RATE 

TOTAL  &HITTO 

REMARKS 

*— » 

3S**\  Tram 

Sawmill 

pucr 

TOTAL 

TOTAL 

Form  8. 


Mechanical  Daily  Labor  Rep 

SHATTUCK  ARIZONA  COPPER  CO. 

ort 

...192 

CLASS 

RATE 

TOTAL  SHIFTS 

REMARKS 

Machine 
Shop 

Black- 
smith 

--':  ■    - 

TOTAL 

TOTAL 

CLASS 

RATE 

TOTAL  SHIFTS 

REMARKS 

Hoists 

mi« 

Mint 
Pump; 

Wain  & 
Oil 

Jtea 

TOTAL 

TOTAL 

Form  9. 


Upon  an  employee  leaving  or  being  discharged  from  the  company's 
service  before  the  end  of  a  pay  period,  he  is  given,  by  the  person  who  is 
responsible  for  his  labor,  a  Discharge  Report  which  report  is  in  two  parts. 


56 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


The  part  requesting  payment  is  given  to  the  employee  leaving  the  com- 
pany's service  and  by  him  given  to  the  timekeeper,  who  delivers  the 
employee  a  time  statement  (Form  10)  to  be  signed  and  delivered  to  the 
Paymaster  at  the  same  time  he  receives  his  pay  check;  and  the  part  show- 
ing the  employee's  record  is  forwarded  to  the  employment  agent  for  his 
use  in  completing  the  employee's  record  on  the  application  Card,  which 


Form9 


Cheek  No Roll  No.. 

NOT  TRANSFERABLE 


IN  ACCOUNT  WITH 


Shattuck  Arizona  Copper  Company 


For  Half  Month  Ending. 


.,  191. 


CREDITS 


By_ 
By_ 
By_ 
By_ 
By_ 


-Days  at  $4.25. 

Days  at  $4.00.. 

.Days  at  $3.7Gu 

.Days  at  $3.50. 

.Days  at  $ 


DEBITS 


Hospital 

Store 

Insurance 

Subscription 

Cash 


Balance  as  per  pay  roll. 


Received  payment  In  full 


NOTE.— This  should  be  signed  before  presenting. 

I2-J1-16  90M  CRANK  KJU 

Form  10. — Time  Statement. 

card  is  then  transferred  from  the  "live"  to  the  "dead"  file.  This  is  also 
done  by  the  Paymaster  to  prevent  the  further  carrying  on  the  rolls  of  the 
discharged  employee,  and  to  keep  the  record  a  live  file  which  will  give 
accurate  information  of  the  employee.  Each  day  or  on  certain  days  a 
list  of  the  names  of  "quitters"  is  furnished  the  dispensary  for  its  protec- 
tion in  extending  medical  services. 

Accidents. — A  Report  of  each  accident  to  each  employee  is  made  by 
the  person  in  charge,  and  when  an  employee  is  off  duty  14  days  or  more 


OPERATING  DISBURSEMENTS  57 

and  has  accepted  compensation  as  provided  by  law  he  is  placed  on  the 
compensation  roll.  After  the  close  of  each  month,  a  report  is  made  to  the 
State  Mine  Inspector  of  all  men  injured  who  lost  time,  or  as  required  by 
the  State  Laws. 

Orders  and  Deductions. — Deductions  are  made  upon  the  pay-rolls 
to  meet  employees'  orders  for  insurance  premiums,  subscriptions,  store 
and  individual  accounts;  also  for  hospital  fees,  and  for  cash  advances. 
Hospital  fees,  for  hospital  and  medical  service,  are  deducted  from  all  em- 
ployees' wages  who  have  been  in  the  service  of  the  company,  the  amount 
being  determined  according  to  whether  the  employee  is  married  or 
single,  and  is  always  uniform.  The  Hospital  deduction  is  entered  against 
each  employee  on  the  roll,  in  the  column  provided  therefor,  at  the  end 
of  each  pay-roll  period. 

Cash  deductions  are  for  cash  advances  as  shown  by  signed  statements 
taken  by  the  Paymaster  when  making  advances  to  employees,  and  are 
entered  on  the  pay-roll  at  the  time  each  advance  is  made. 

All  other  deductions,  such  as  for  insurance  premiums,  subscriptions, 
store  and  other  accounts  are  covered  by  orders  which  must  be  worded  to 
comply  with  the  law  of  the  State  covering  such  matters,  and  are  entered 
on  the  rolls  at  the  time  the  orders  are  received. 

Balancing  Pay-rolls. — As  the  Accounting  Period  invariably  ends  with 
each  calendar  month,  it  is  necessary,  at  such  time,  th?U  the  timekeeper, 
before  sending  the  rolls  to  the  Paymaster,  balance  them  against  the  time 
books  as  to  total  shifts.  After  they  are  received  by  the  Paymaster,  the 
Cash  Advance  Deductions  are  balanced  against  the  General  Cash  Book 
record,  and  Time  Statements  are  then  made  out  for  the  balance  due  each 
employee  showing  thereon  all  deductions,  extensions  being  made  and 
checked  on  the  pay-rolls  at  the  same  time.  A  recapitulation  of  the  rolls 
is  then  made  (Form  No.  11)  and  checked  against  the  cost  segregations 
as  to  shifts  and  dollars  (Form  No.  12).  The  time  statements  are  then 
numbered  with  the  pay-roll  numbers,  the  paid  time  statements  taken 
out  and  checks  drawn  to  satisfy  the  unpaid  statements. 

Time  Statements  and  Payments. — Payment  to  each  employee  is 
made  on  the  regular  pay  days  for  the  net  amount  due,  after  any  and  all 
deductions  have  been  made  as  shown  on  the  roll  and  by  the  Time  State- 
ment, which  latter  is  made  out  at  the  time  the  roll  is  extended  and  bal- 
anced, and  which  is  then  distributed  to  the  men  by  each  supervisor  of 
labor,  the  day  before  pay  day,  for  their  examination  and  information. 
The  time  statement  is  signed  by  each  employee  and  is  presented  by  him 
to  the  Paymaster  on  Pay  Day,  at  which  time  his  Pay  Cheque  is  delivered 
to  him. 

Labor  Disbursement  Account. — In  order  to  make  a  record  upon  the 
books  of  the  company  to  show  the  amount  of  the  month's  labor  for  which 
the  operations  must  furnish  distribution,  as  well  as  to  show  the  liability 


58 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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- 


OPERA  TING  DISB  URSEMENTS 


59 


Underground  Labor 
December,  1916 


Muckers 
5.60 

Miners 
5.85 

Tmb.  and 
Cgr. 
6.10 

Shaftmen 

Demonstr. 
6.85 

Total 

6.35 

6.60 

12-   1 

203 . 25 

148 

28 

2 

381.25 

2 

205.25 

148 

28 

2 

0 

383.25 

3 

2 

0 

2 

4 

204 . 25 

150 

27 

2 

0 

383.25 

5 

211.50 

146 

28 

2 

0 

387.50 

6 

204 . 25 

142.50 

29 

2 

0 

377.75 

7 

205.50 

151 

27 

2 

0 

385.50 

8 

210 

150.25 

28 

2 

0 

390.25 

9 

212 

147 

28 

2 

0 

389. 

10 

2 

0 

2 

11 

210 

153.25 

30 

3  95.25 

12 

212.25 

156 

31 

401.25 

13 

213.25 

154.75 

31 

401 

14 

212.50 

157 

31 

402 . 50 

15 

213.50 

157 

31 

403 . 50 

2,717.50 

1,960.75 

377 

25 

4 

5,085.25 

$15,218.00 

$11,470.39 

$2,299.70 

$158.75 

$33.00 

$29,179.84 

Difference 

Roll 

.02 

$29,179.86 

210.25 

107 

209 

217 

214.25 

177. 5C 

153 

196.5 

100.25 

210 

209 . 50 
209.375 
209 
209 . 25 


2,631.875 
$14,738.50 


1,922 
$11,243.70 


156.25 

31 

73 

15 

153 

28 

156 

29 

152 

28 

149.75 

32 

113 

26 

144 

28 

74 

14 

150 

27 

152.50 

29 

149 

27 

148.50 

29 

151 

29 

For  Month: 


5,349.375!        3,882.75 
$29,956.50      $22,714.09 


372.50 
$2,272.25 


749 . 50 
,571.95 


1 
111 


42.5 

$269.88 


17.5 


$115.50 


22.5  I 
$148.50 


10 
$68.50 


$28,549.60 


10,056.625 
$57,729.42 


Form  12. 


60 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


therefor  which  must  be  satisfied  by  cash  disbursements,  an  entry  is 
made  in  the  Journal  for  posting  to  the  general  and  subsidiary  ledgers  of 
the  total  amount  of  all  rolls,  as  follows: 

Labor $67 ,383 .  45 

To  Accounts  Payable $67,383.45 

Labor $67,383.45 


BILLS    AUDITED 


Invoices 


Freight 
dills 


Check 


Cash 
Discounts 
and  Credits 


Bills  of 
Expense 


Check- 


Voucher 


Distribution 


Bills  Audited 
Record 


Voucher 
Check 


Journal  Entry 


Summary 

of 

Bills  Audited 


Chart  VI. 


BILLS  AUDITED 

The  Bills  Audited  Disbursement  Account  is  charged  with  the  total 
amount  of  all  vouchers  audited  for  properly  authorized  and  checked 
invoices,  freight  bills,  statements  of  expense  incurred,  statements  of 
amounts  due  on  authorized  contracts,  for  which  vouchers  have  been  re- 
corded in  the  Bills  Audited  record,  Form  13. 

Invoices  and  Freight  Bills. — All  invoices  for  materials  and  supplies 
purchased  and  received  each  month,  and  all  freight  bills  for  materials 
received  that  have  been  approved  by  the  Purchasing  Department,  are 


OPERATING  DISBURSEMENTS  61 

covered  by  vouchers  in  favor  of  the  proper  persons,  firms  or  corporations. 
The  form  of  invoice  is  determined  by  the  nature  of  the  business  of  the 
company  which  furnished  the  materials  and  a  copy  of  each  invoice  is 
attached  to  the  voucher  or  filed  with  the  voucher  number  marked  thereon. 

Cash  Discounts  and  Credits. — In  recording  the  vouchers  in  the  Bills 
Audited  Record,  the  amount  of  each  cash  discount  and  the  amount  of 
each  credit  taken  that  does  not  apply  to  the  invoice  vouchered,  but  which 
is  to  offset  a  previous  charge  to  Accounts  Receivable,  etc.,  is  entered  in 
the  Credit  column;  and  at  the  end  of  the  accounting  period,  when  the 
Bills  Audited  Record  is  closed,  a  voucher  is  made  in  favor  of  the  company 
for  the  total  of  the  Discounts  and  Credits  which  balances  the  net  amount 
of  the  Bills  Audited  Record  with  the  distribution  segregations. 

Bills  of  Expense. — Bills  of  Expense  are  rendered  to  the  Accounting 
Department  and  are  for  expense  incurred  by  the  employees  of  the  com- 
pany, or  for  amounts  due  to  others  on  authorized  contracts,  and,  upon 
approval  by  the  proper  department  head,  are  vouchered. 

Check  of  Invoices,  Etc. — Before  payment  can  be  made,  all  invoices, 
freight  bills,  or  bills  of  expense,  must  bear  proper  evidence  of  check  and 
approval.  The  usual  method  is  to  stamp  upon  the  face  of  the  invoice, 
etc.,  by  a  rubber  stamp,  a  form  to  be  filled  in  and  signed  by  the  proper 
person. 

Vouchers. — Vouchers  are  made  out  in  original  only,  and  when  in 
payment  of  invoices  the  original  copy  of  each  invoice  is  attached  to  the 
voucher;  when  in  payment  of  freight  bills,  the  date,  number,  weights, 
items  and  amount  of  each  are  listed  on  the  face  of  the  voucher;  when  for 
Discounts  the  month  is  specified  in  which  discounts  were  taken;  when  for 
Credits  the  nature  and  account  of  each  credit  is  stated ;  and  when  for  bills 
of  expense  the  original  copy  of  each  bill  is  attached.  When  a  voucher 
cheque  is  used  the  date  and  number  of  the  invoice  or  bill  of  expense,  etc., 
is  listed  on  the  voucher  and  the  invoice  is  filed  after  being  marked  with 
number  of  voucher  cheque. 

The  distribution  to  the  proper  warehouse  stocks  of  the  materials 
received  and  freights  paid,  as  well  as  the  distribution  to  the  proper  expense 
accounts  of  the  bills  of  expense,  are  shown  on  the  back  of  each  voucher. 
The  proper  distribution  of  the  Discounts  and  Credits  is  shown  on  the  face 
of  the  voucher.  Vouchers  for  invoices  subject  to  discount  are  made  out 
and  delivered  immediately.  Vouchers  for  all  other  approved  invoices  or 
bills  of  expense  are  made  out  and  usually  delivered  before  the  tenth  of  the 
following  month. 

Bills  Audited  Record. — The  approved  vouchers  are  entered  in  the 
Bills  Audited  Record  (Form  13)  numerically  and  according  to  the  month 
in  which  the  expense  was  paid.  When  vouchers  have  been  made  of  all 
approved  invoices  and  freight  bills  and  of  all  expense  with  which  the 
month's  operations  is  to  be  charged,  the  Bills  Audited  Record  is  closed, 


62 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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OPERATING  DISBURSEMENTS  63 

a  voucher  made  in  favor  of  the  company  for  the  total  amount  of  the 
month's  Credits  and  Discounts,  and  the  record  balanced. 

Check  of  Bills  Audited  Record. — A  summary  of  the  distributions  in 
the  Bills  Audited  Record  is  made  and  this  summary  total  must  balance 
with  the  total  of  the  amounts  listed  in  the  Net  Amount  Payable,  plus  the 
Credit  Columns;  also  with  the  total  of  the  Bills  Audited  Cheques  issued 
as  listed  in  the  Bills  Audited  Cheque  Register. 

Voucher  Cheque. — Voucher  cheques  are  drawn  to  satisfy  the  amount 
of  the  approved  vouchers  and  the  cheques  listed  in  the  Bills  Audited 
Cheque  Register.  The  cheques,  together  with  the  Vouchers,  are  de- 
livered or  mailed  to  the  proper  persons,  firms  or  corporations,  in  whose 
favor  they  are  drawn,  and  who  are  to  receipt  therefor. 

Bills  Audited  Disbursement  Account. — In  order  to  record  upon  the 
books  the  amount  of  the  Bills  Audited  Disbursements,  of  which  distri- 
butions must  be  made,  and  to  show  the  liability  therefor,  a  Journal 
Entry  is  made  for  the  total  amount  of  the  summary  of  the  Bills  Audited 
Record,  as  follows: 

Bills  Audited $94,245. 62 

To  Accounts  Payable $94,245.62 

Bills  Audited $94,245.62 


SUPPLIES  ISSUED 


Regular 
Requisition 

Special 
Requisition 

Supplies  Issued 
Charge  Ticket 

Supplies  Issued 
Record 

Check 

Handling 

Journal  Entry 

Summary 

Sut 

o 

■jplies.  Is 

T 

%ued  Record 

Chart  VII. 


SUPPLIES  ISSUED 
The  Supplies  Issued  Disbursement  Account  is  charged  with  the  total 
of  all  materials  and  supplies  issued  to  operations  as  shown  by  the  Supplies 
Issued  Record,  and  is  created,  as  follows: 


64 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Authorization  of  Disbursements  of  Supplies. — Disbursements  of 
materials  and  supplies  are  made  upon  requisitions  (Form  14)  signed  by 
persons  having  authority  to  requisition  supplies,  except  for  such  supplies 
as  fuel  oil,  where  the  tanks  are  measured  at  the  end  of  each  accounting 
period,  and  of  timber  sawed  and  framed  by  the  sawmill,  where  a  check  of 
the  materials  delivered  to  and  from  the  sawmill  is  taken  each  day  and 


REQUISTION      FOR      SUPPLIES 

SHATTUCK  ARIZONA  COPPER  CO. 

STOREKEEPER:                                                                         

Issued  to 

lYarehbtiees 
Aitcurt  Nc. 

QUANTITY 

ARTICLE 

FOR 

Title 

Form  14. 


Record  of  Powder,  Caps  and  Fuse 

Used                               192 

Le,e, 

PLACE 

STICKS  OF  POWER 

NO.OF  CAPS 

F«et 
Fuso 

I ■ 1 

TOTAL 

Form  15. 


at  the  end  of  the  accounting  period,  and  of  other  supplies  stored  outside 
of  the  warehouse  which  is  reported  on  special  requisitions  as  shown  by 
Form  15  and  from  such  reports  charge  tickets  are  made  for  the  month's 
consumption  of  oil,  timber,  powder,  etc.,  used. 

Report  of  Supplies  Issued. — Each  day,  the  Storekeeper  compiles  the 
requisitions  for  supplies  and  makes  out  Supplies  Issued  Tickets  (Form  16), 
one  ticket  for  each  operating  department  unit,  or  sub-unit,  repair  or 
construction  job,  to  which  supplies  have  been  issued  as  shown  by  the 


OPERATING  DISBURSEMENTS 


65 


requisitions,  entering  on  each  ticket,  above  the  name  of  the  article,  the 
quantity  issued,  and  at  the  end  of  the  fifth  day,  the  total  of  the  issues  of 
each  article  is  extended  to  the  " quantity"  column  and  the  number  of 
the  stock  to  be  credited  is  noted  in  the  "stock"  column.  The  warehouse 
stock  cards  are  then  consulted  for  prices  of  each  of  the  articles  and  the 
total  amount  is  extended  on  the  charge  ticket  to  the  "amount"  column. 


Supplies    Issued    Ticket 

Shattuck  Arizona  Copper  Co 


J92_ 


-Charge— to_ 


_Account_No.. 


Form  16. 


STOCK  RECORD  OF 

STOCK     RECEIVED 

GIVEN  OCT  ON  REQUISITIONS 

ON  HAND 

hat;:  i:::ct 

order  no!     froji  wiio:: 

QUANTITY 

I'MT  CO: :1 

DATE 

ACCT. 

QUANTITY 

QUANTITY 

Form  17. 


At  the  same  time  the  quantity  issued  of  each  article  is  credited  to  the 
stock  on  the  Warehouse  Stock  Record  (Form  17).  A  summary  of  the 
charge  tickets  is  made  and  also  a  summary  of  the  credits  to  each  stock, 
which  must  balance  with  the  total  charges  for  each  five-day  period  and 
this  summary  together  with  the  charge  tickets  and  the  original  requisi- 
tions are  forwarded  to  the  accounting  office  at  the  end  of  each  period, 
Record  of  Supplies  Issued. — First,  the  items  on  the  requisitions  are 
checked  against  the  items  charged  on  the  charge  tickets  to  ascertain 


66 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


SUPPLIES  ISSUED   RECORD 

SHATTUCK  ARIZONA  COPPER  COMPANY 
For   ^AAntptt  of                                                                                                               Month  of 

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whether  or  not  all  items  issued  have 
been  charged,  and  then  the  charge 
tickets  are  numbered  and  entered  on 
the  Supplies  Issued  Sheets  (Form  18), 
one  sheet  being  used  for  each  depart- 
ment unit  or  sub-unit,  repair  or  con- 
struction job.  The  names  of  all  articles 
charged  to  Asset  Accounts  are  written 
in  on  the  sheets,  but  only  the  ticket 
numbers  and  the  amounts  credited  to 
each  stock  are  entered  on  the  sheets 
for  charges  to  Operating  Department 
accounts  or  sub-accounts. 

In  the  case  of  powder,  caps  and 
fuse  issued  to  the  mine,  the  men 
responsible  for  the  distribution  of  such 
supplies  note  their  distributions  in  a 
record  (Form  15)  from  which  charge 
tickets  are  made  at  the  end  of  each 
accounting  period  after  adjustment 
has  been  made  with  the  warehouse  and 
by  inventory  of  such  supplies  unused 
on  hand  in  the  mine. 

Handling. — At  the  end  of  each 
month,  or  accounting  period,  the  total 
of  the  general  handling  charges  for  the 
previous  month,  consisting  of  Ware- 
house Expense,  Yard  and  Miscellaneous 
Labor,  and  Teaming,  etc.,  is  pro-rated 
over  the  total  supplies  issued;  first,  by 
dividing  the  total  of  the  supply  stocks, 
except  that  of  fuel  oil,  into  the  total  of 
the  general  handling  charges  and  ob- 
taining the  ratio  of  handling  cost  to 
each  dollar  of  supplies  issued;  second, 
multiplying  the  total  of  the  credits  to 
each  stock  on  each  Supplies  Issued 
Sheet,  except  fuel  oil,  by  this  factor  to 
obtain  the  total  handling  charge  for 
each  stock  for  each  account  or  depart- 
ment unit,  or  sub-unit. 

The  fuel  oil  stock  is  usually  charged 
at  the  close  of  each  month  with  the 
amount  of  the  total  pumping  oil  cost 


OPERATING  DISBURSEMENTS  67 

only,  and  the  lumber  and  timber  stock  is  charged  with  the  total  framing 
timber  cost  as  well  as  the  handling  cost.      The  costs  of  "Handling," 
"Pumping  oil,"  and  "Framing,"  etc.,  are  always  for  the  previous  month. 
An  illustration  of  the  entry  for  Handling  is  as  follows: 

General $163. 67 

Iron  and  Steel 31 .  05 

Explosives 327. 49 

Fuel 104.65 

Lumber  and  Timber 696. 85 

Machinery 62.62 

Pipe  and  Fittings 46 .  14 

Oils  and  Greases 10 .  73 

Tools 15.66 

To  Handling $1,458.86 

Framing • $448.06 

Pumping  Oil 104. 65 

Warehouse  Expense 624 .  77 

Miscellaneous  Labor 261 .  55 

Teaming 11. 50 

Switching 8.33 

"Closing  out  the  'Handling'  account  for  previous  month." 

While  this  entry  should  be  made  on  a  Summary  Cost  Sheet  for 
posting  to  Cost  Ledger,  it  is  very  often  made  in  the  General  Journal 
and  posted  to  the  Cost  Ledger  using  the  subsidiary  column  of  the  General 
Journal. 

In  charging  to  Materials  and  Supply  Stocks  the  amount  of  the  Hand- 
ling for  each  operating  month,  and,  at  the  end  of  the  following  month  cred- 
iting Materials  and  Supplies  a  like  amount  and  pro-rating  same  over  the 
amounts  of  the  supplies  issued  to  the  different  operating  departments  or 
sub-departments,  it  is  possible  to  close  the  Materials  and  Supplies  Account 
at  the  end  of  the  accounting  period  immediately  without  delay  to  the 
bookkeeping  and  costing  routine.  The  other  method  of  disposing 
of  the  handling  expense  is  by  the  laborious  process  of  pro-rating  a  cer- 
tain percentage  of  the  handling  to  each  article  when  costing  all  supplies 
as  received  at  the  warehouse. 

Check  of  Supplies  Issued. — The  original  supply  requisitions,  after 
they  have  been  checked  against  the  Supplies  Issued  Tickets  and  the 
accuracy  of  the  charges  determined,  are  sorted  and  delivered  to  the  heads 
of  the  operating  departments  at  the  end  of  each  week,  or  at  set  inter- 
vals to  insure  that  the  supplies  issued  from  the  warehouse  were  properly 
authorized.  The  summary  according  to  stocks  of  the  charge  tickets  is 
checked  against  the  total  of  the  Supplies  Issued  Sheets  at  the  end  of  each 
month,  and  when  balanced  the  tickets  are  punched  and  filed  for  reference. 

Supplies  Issued  Disbursement  Account. — At  the  end  of  the  account- 
ing period,  in  order  to  make  a  record  upon  the  books  to  show  the  amount 


68  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

of  the  Supplies  Issued  for  which  the  Operations  must  furnish  distribution, 
a  Journal  Entry  is  made,  as  follows: 

Supplies  Issued $29 ,  359 .  41 

To  Materials  and  Supplies $29,359.41 

General $5,495.52 

Iron  and  Steel 701 .  46 

Explosives 7,914.72 

Fuel 3,636.59 

Lumber  and  Timber 8,044. 19 

Machinery 1 ,  904 .  95 

Pipe  and  Fittings 826.39 

Oils  and  Greases 316.36 

Tools 519.23 

Postings  of  these  amounts  are  made  to  the  General  and  Subsidiary 
Ledger  Accounts,  and  give  the  amount  of  supplies  charged  to  operations 
and  the  credit  charges  to  Materials  and  Supplies  accounts: 

SUMMARY  OF  DIRECT  DISBURSEMENTS 

A  statement  taken  from  the  operating  ledger  at  this  stage  would  show 
the  actual  operating  disbursements  and  liability  therefor    as   follows 

Labor $67,383.45 

Bills  audited 94,245.62 

Supplies  issued 29,359.41 

To  Accounts  Payable $161 ,629.07 

Materials  and  Supplies 29,359.41 

We  now  have  the  amount  of  disbursements  chargeable  to  operations 
as  shown  by  the  Labor,  Bills  Audited  and  Supplies  Issued  Accounts,  and 
the  amount  of  liabilities  to  others  shown  by  the  Accounts  Payable  Account 
that  must  be  satisfied  by  cash  payments  as  well  as  the  amount  of  credit 
to  stocks  for  materials  issued  to  operations.  However,  in  order  that 
proper  costing  may  be  obtained  it  is  necessary  to  divide  the  actual  dis- 
bursements into  Direct  and  Indirect  Disbursements  by  showing  the 
amount  of  disbursements  that  are  applied  to  operations  indirectly  and 
create  the  necessary  indirect  disbursement  accounts  to  take  care  of  such 
disbursements. 

OPERATING  DISBURSEMENTS 
ACTUAL  DISBURSEMENTS— INDIRECT 

Indirect  Disbursements  are  subsidiary  divisions  of  the  Direct 
Disbursements  of  Labor,  Supplies  and  Expense  that  are  applied  to  opera- 
tions indirectly  by  means  of  the  Shops  and  Power  Plants. 

Shops. — The  Shops  operated  by  producing  mining  companies  gener- 
ally consist  of  Machine  Shop,  Blacksmith  Shop,  and  Carpenter  Shop, 


OPERATING  DISBURSEMENTS  69 

and  Sawmill,  for  which  a  control  account  is  carried  in  the  general  ledger 
entitled  "Shops,"  and  a  detail  account  for  each  is  kept  in  the  cost  ledger. 
These  Shops  are  considered  auxiliary  departments,  as  the  work  done 
therein  is  not  for  production  itself,  but  secondarily  for  new  construction, 
for  renewals  to  operating  equipment  and  primarily  for  repairing  and 
replacing  operating  equipment.  Therefore,  all  labor  employed  in  the 
Shops  is  recorded  on  separate  rolls,  all  supplies  used  are  entered  on 
separate  Supplies  Issued  sheets,  and  all  expense  paid  is  listed  under 
shops  in  the  Bills  Audited  Record.  A  credit  charge  is  made  each  to 
Labor,  Supplies  Issued  and  Bills  Audited,  for  the  amount  of  Labor, 
Supplies  and  Expense  chargeable  to  shops,  and  charges  made  to  Control 
and  Subsidiary  Accounts,  as  follows: 

Shops $9,365. 97 

To  Labor $9,032.88 

Supplies  Issued 274. 62 

Bills  Audited 58.47 

In  actual  practice,  a  Journal  Entry  is  made  to  cover  the  charges  to 
the  Shops  each  for  Labor,  Supplies  Issued  and  Bills  Audited  instead  of 
one  entry  as  shown  above.  The  replacement  and  repair  charges,  if  any, 
to  the  Shops  are  made  when  the  Replacement  and  Repair  Accounts  are 
cleared  each  month.  All  supplies  used  by  the  Shops  which  are  not  for 
their  direct  operations  but  for  Construction,  Replacements,  Repairs, 
Jobs,  or  Operating  Departments  are  charged  on  Supplies  Issued  Sheets, 
one  sheet  for  each  account,  department  or  job. 

Power. — The  Power  units  generally  operated  by  producing  mines 
consist  of  boilers,  air  compressors,  air  drills  and  electrical  plant,  for  all 
of  which  a  control  account  is  kept  in  the  general  ledger  entitled  "Power" 
and  the  detail  accounts  of  each  are  carried  in  the  cost  ledger. 

These  power  units  either  produce  power  for  or  apply  power  to  the 
mining  operations  and  are  auxiliary  divisions  of  mining  operations,  as 
mining  can  be  done  without  the  use  of  any  of  these  power  units. 

Charges  for  Labor,  Supplies  and  Expense  to  Power  Accounts,  or  the 
subsidiary  power  accounts,  are  to  offset  credits  to  the  direct  disbursement 
accounts  of  Labor,  Supplies  Issued,  and  Bills  Audited,  as  follows: 

Power $5,716.44 

To  Labor $1 ,343.74 

Supplies  Issued 3 ,  793 .  24 

Bills  Audited 579.46 

The  Replacement  and  Repair  charges,  if  any,  are  made  when  the 
Replacement  Accounts  are  cleared  each  month. 


70  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

SUMMARY  OF  ACTUAL  DISBURSEMENTS 

We  now  would  have  a  record  of  the  Actual  Disbursement  divided  into 
Direct  and  Indirect,  as  follows: 

Labor $57,006.83 

Supplies 25,291 .  55 

Bills  Audited 93,607. 69 

Shops 8 ,  647 .  85 

Power 6,434.56 

offset  by  disbursement  liabilities  of 

Accounts  Payable $161,629.07 

Materials  and  Supplies 29 ,  359 .  41 

This  takes  care  of  the  disbursements  to  operations  except  accrued 
disbursements  which  must  be  recorded  in  each  period  of  operation, 
although  the  actual  disbursements  therefor  come  up  at  sometime  in  the 
future,  and  of  deferred  disbursements  to  take  care  of  depletion  and 
depreciation. 

ACCRUED  AND  DEFERRED  DISBURSEMENTS 

Accrued  Disbursements 

In  accounting  Accrued  Disbursements  refer  to  those  liabilities  which 
are  recorded  upon  the  books  at  the  end  of  each  operating  period,  the 
payments  of  which  are  made  in  a  future  period.  These  consist  of  accrued 
operating  expense  such  as  re6ning  and  selling  expense  charged  against 
each  month's  production,  but  for  which  payments  are  made  several 
months  later  for  the  refining,  and  for  the  selling  after  the  metal  has 
been  sold;  of  Taxes  Accruing  for  which  a  charge  is  made  to  operating 
expense  each  month  for  the  monthly  proportion  of  the  year's  taxes; 
and  of  Accident  Liabilities  when  the  business  sets  aside  each  month  a 
certain  per  cent  of  its  pay-rolls  as  a  reserve  with  which  to  meet  the 
payments  that  will  have  to  be  made  to  satisfy  the  requirements  of  the 
law  in  case  of  serious  accidents  and  in  settlement  of  accident  claims. 
Where  a  policy  is  taken  out  to  cover  such  liability  and  the  premium  is 
paid  in  advance,  then  a  direct  disbursement  is  made  and  the  accrued 
charges  to  operating  expense  are  carried  under  Prepaid  Expense. 

In  practice  it  is  only  when  the  accounting  and  costing  records  are 
separate  that  it  is  necessary  to  carry  the  accrued  disbursement  accounts 
on  the  books.  For  instance,  instead  of  debiting  Taxes  Accruing  and 
crediting  Reserve  for  Taxes  for  the  month's  proportion  of  taxes,  and 
then  crediting  Taxes  Accruing  and  debiting  Operating  Overhead-taxes 
a  like  amount,  in  order  to  get  on  the  books  both  the  liability  and  the 
proper  charge  to  operating  expense,  the  credit  to  Reserve  for  Taxes  is 


OPERATING  DISBURSEMENTS  71 

offset  by  a  debit  direct  to  Operating  Overhead-taxes  which  saves  the 
opening  and  closing  of  the  account  Taxes  Accruing  and  still  records  the 
liability  on  the  books  as  well  as  making  the  proper  charge  to  operations. 
However,  where  it  is  desired  to  keep  the  cost  segregations  complete  and 
separate,  it  is  best  to  carry  the  accrued  disbursement  debit  accounts  in 
the  general  ledger. 

This  is  also  true  of  the  Accident  Liability,  Bullion  Freight  and  Refin- 
ing Expense  Accruing,  and  Selling  Expense  Accruing  Accounts.  They 
are  seldom  carried  on  the  books  in  practice  and  are  shown  on  the  Chart 
to  demonstrate  the  principles  involved.  However,  in  order  to  make 
the  accounting  illustrations  correct  in  theory  we  will  show  the  charges  to 
the  Accrued  Accounts.  Journal  entries  for  Accrued  Disbursements  are 
made  for  each  period's  accrued  disbursements,  as  follows: 

Accident  Liability $  2,695. 35 

To  Reserve  for  Accidents $  2,695. 35 

"  Four  per  cent  of  pay-roll  reserved  for  protection  against 
payments  on  account  of  accidents." 

Taxes  Accruing $  9,721.05 

To  Reserve  for  Taxes $  9,721 .  05 

"One-twelfth  of  the  amount  estimated  for  State  and 
County  Taxes." 
Bullion,  Freight  and  Refining  Accruing $14,320.45 

To   Bullion   Freight  and  Refining  Not  Due $14,320.45 

"Cost  of  Freight  and  Refining  of  849,840  lb.  copper  at 
0.016  ct.  and  extra  charge  of  $2.48  per  ton  on  588,230  lb." 

Selling  Expense  Accruing $  3 ,  992 .  35 

To  Selling  Expense  Not  Due $  3,992. 35 

"Estimated  cost  of  selling  and  delivery  of  copper  at 
0.0047  ct." 

Where  an  estimated  figure  is  used  as  the  basis  of  an  entry,  as  in 
the  case  of  Selling,  the  estimated  figure  is  revised  from  time  to  time  to 
keep  the  estimate  as  near  the  actual  as  possible. 

Deferred  Disbursements 

Deferred  Disbursements  consist  of  book  charges  for: 

Depreciation  of  Equipment,  and 

Depletion  of  Mines, 
and  are  proportional  charges  of  past  disbursements  made  for  Equipment, 
Mine  Property  and  Mine  Development. 

While  these  charges  are  taken  up  on  the  operating  books  in  order 
that  it  may  be  known  whether  or  not  operations  are  resulting  in  a  profit 
or  a  loss  for  each  period,  the  deferred  charges  are  not  distributed  over  the 
departments  of  expense  but  are  carried  to  the  Administrative  books 
and  closed  direct  into  the  Income  or  Profit  and  Loss  Account  at  the  end  of 
each  year. 


72  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

DEPRECIATION  OF  EQUIPMENT 

The  monthly  charge  for  Depreciation  of  Equipment  is  determined 
either  according  to  the  estimated  length  of  life  of  each  unit  of  equipment, 
which  requires  a  schedule  to  be  made  up  showing  each  unit  of  equipment, 
its  total  cost,  the  estimated  length  of  life  and  the  proportional  deprecia- 
tion charge  for  each  unit  of  equipment  for  each  month  of  life ;  or  is  based 
upon  the  estimated  length  of  life  of  the  mine  when  the  latter  is  equal  to  or 
less  than  the  estimated  length  of  life  of  the  bulk  of  the  equipment;  or 
is  based  upon  an  arbitrary  length  of  time  such  as  from  5  to  20  years, 
depending  upon  the  character  of  the  equipment,  the  nature  of  the  business, 
and  whether  or  not  the  equipment  would  be  liable  to  become  obsolete  or 
too  expensive  to  operate  after  a  certain  period  of  use. 

It  is  considered  good  policy  in  mining,  after  the  mine  enters  the  pro- 
duction stage,  to  base  the  life  of  all  equipment  on  a  period  of  10  years 
of  operation.  Of  course,  some  of  the  equipment  will  not  have  a  life  of 
10  years,  and  such  equipment  will  have  to  be  replaced  through  replace- 
ment charges  to  operation.  If  the  replacement  charges  are  made  against 
the  depreciation  reserve  then,  of  course,  the  depreciation  charges  will 
need  to  be  raised. 

When  an  average  life  of  all  equipment  is  taken,  the  necessary  replace- 
ment charges  to  prolong  the  life  of  that  part  of  the  equipment  of  less  life 
than  the  estimated  life  are  charged  to  production  operation. 

The  depreciation  charge  is  taken  up  on  the  operating  books  by  journal 
entry,  as  follows: 

Depreciation  of  Equipment $3,568.33 

To  Reserve  for  Depreciation $3 ,  568 .  33 

"Being  1M  per  cent  of  the  total  Construction  and  Equip- 
ment Account,  or  at  rate  of  15  per  cent  per  year." 

Whatever  adjustment  that  may  be  needed  to  make  the  depreciation 
charge  exact  is  made  the  last  month  of  the  year. 

DEPLETION  OF  MINES 

The  Depletion  of  Mines  monthly  charge  is  determined  by  multi- 
plying the  depletion  factor  by  the  number  of  wet  tons  of  ore  smelted 
or  by  the  number  of  pounds  of  metal  recovered  or  produced  from  ore 
smelted. 

The  depletion  factor  for  each  year  is  obtained  by  dividing  the  total 
property  investment,  less  the  amount  of  depletion  previously  set  aside, 
by  the  number  of  wet  tons  of  commercial  ore  in  sight,  plus  the  number  of 
tons  of  probable  ore  that  will  be  developed  according  to  the  estimates, 
judgment  or  expectations  of  the  company's  engineers.  However  in 
making  return  of  income  for  purpose  of  federal  taxes,  the  depletion  charge 
is  obtained  by  multiplying  the  depletion  factor  allowed  by  the  Treasury 
Department  by  the  number  of  units  of  metal  sold. 


OPERATING  DISBURSEMENTS  73 

According  to  federal  tax  law  the  property  investment  for  mines  whose 
properties  were  purchased  prior  to  Marh  1,  1913,  is  the  fair  market 
value  of  the  ore  in  place  in  the  mine  on  that  date,  and  the  property  in- 
vestment of  mines  whose  properties  were  acquired  since  March  1,  1913, 
is  the  actual  investment  in  the  mine  property,  or  purchase  price  plus 
development  not  charged  to  operation,  or  the  discovery  value  thirty 
days  after  date  of  discovery. 

The  law  does  not  specify  as  to  how  "the  fair  market  value  of  the  ore 
in  place  as  of  March  1,  1913,"  shall  be  determined,  neither  does  it  specify 
what  shall  constitute  the  "actual  investment  in  mine  property  or  the 
discovery  value."  Such  determinations  are  left  up  to  the  regulations  of 
the  Treasury  Department,  the  main  points  of  which  are  set  forth  in 
Chapter  V. 

Therefore,  the  determining  of  the  depletion  factor,  as  far  as  the 
amount  that  will  be  allowed  by  the  Federal  Government,  is  a  matter 
that  must  be  settled  with  the  Treasury  Department.  However,  each 
individual  mine  may  determine  its  depreciation  and  its  depletion  charges 
to  operations  according  to  its  own  judgment  as  to  what  should  be 
charged  to  each  year's  production  in  order  to  properly  distribute  the 
capital  investment  in  equipment  and  mine  property  against  each  year's 
production  earnings  during  the  life  of  production,  and  can  make  a 
revised  report  for  taxation  purposes.  The  recent  ruling  of  the  Treasury 
Department  in  regard  to  depletion  is  that  the  depletion  charge  must 
be  taken  as  the  produced  ore,  metal  or  mineral  is  sold  and  not  as  it  is 
produced  as  has  been  the  accepted  custom  heretofore. 

In  proportion  to  the  accuracy  exercised  by  each  company  in  dis- 
tributing its  capital  investment  charges  of  depreciation  and  depletion 
to  production  is  the  true  production  cost  and  the  actual  earnings  known. 

Therefore,  when  the  fair  market  value  of  the  mine  property  as  of 
March  1,  1913,  or  the  discovery  value,  is  greater  than  the  actual  invest- 
ment, in  order  that  the  actual  production  cost  may  be  known,  it  is  well  to 
divide  the  depletion  charge,  making  one  charge  for  actual  depletion  based 
on  investment,  and  an  additional  charge  to  take  care  of  the  increased 
value  as  of  March  1,  1913. 

The  depletion  charge  based  on  cost  may  be  taken  up  on  the  operating 
books  at  the  end  of  each  accounting  period,  so  as  to  give  the  actual  cost, 
while  the  additional  charge  can  be  taken  up  at  the  end  of  the  year  on  the 
Administrative  Books. 

The  depletion  charge  is  taken  up  on  the  records  by  journal  entry,  as 
follows: 

Depletion $47,514.43 

To  Reserve  for  Depletion $47,514.43 

"Wet  tons  of  ore  mined  and  treated  at  $4.8963  per  ton, 

based  on  property  value  as  of  March  1,  1913." 


74  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

It  is  absolutely  necessary  that  the  amounts  of  depreciation  and  deple- 
tion be  taken  upon  the  books  each  month  in  order  that  the  operating  pro- 
fit available  for  regular  dividends  may  be  known. 

SUMMARY  OF  DISBURSEMENTS 

We  have  now  recorded  all  the  operating  disbursements  involved  in 
the  operation  of  a  producing  mine,  and  a  statement  taken  from  the  ledger 
for  the  period  would  show  the  disbursement  debit  and  credit  accounts, 
as  follows: 

Debits 

Actual 

Labor $  57,006.83 

Bills  Audited 93,607.69 

Supplies 25,291 . 55 

Shops 8,647.85 

Power 6,434.56 

Accrued 

Accident  Liability 2,695.35 

Taxes  Accruing 9,721 . 05 

Bullion,  Freight  and  Refining  Accruing 14,320.35 

Selling  Expense  Accruing 3 ,  992 .  35 

Deferred 

Depreciation  of  Equipment 3 ,  568 .  33 

Depletion  of  Mines 47 ,  514 .  43 

$272,800.44 

Credits 

Actual 

Accounts  Payable $161 ,629.07 

Materials  and  Supplies  Issued 29,359.41 

Accrued 

Reserve  for  Accidents 2 ,  695 .  35 

Reserve  for  Taxes 9 ,  721 .  05 

Bullion  Freight  and  Refining  Not  Due 14 ,320. 45 

Selling  Expense  Not  Due 3,992.35 

Deferred 

Reserve  for  Depreciation 3 , 568. 33 

Reserve  for  Depletion 47,514 . 43 

$272,800.44 

The  liability  accounts  of  Current  Accounts  Payable,  Reserve  for 
Accidents,  Reserve  for  Taxes,  Bullion  Freight  and  Refining  and  Selling 
Not  Due,  must  stand  upon  the  books  until  cash  payments  are  made  to 
close  them.  The  Materials  and  Supplies  Credit  is  made  direct  to  the 
Materials  and  Supplies  Account,  which  is  reduced  a  like  amount. 


OPERATING  DISBURSEMENTS  75 

The  Depreciation  and  Depletion  Reserves  are  carried  on  the  records 
until  closed  out  by  charges  to  cover  replacements  of  equipment  and  for 
new  investments  in  mining  property  or  are  distributed  as  capital  dividends 

The  deferred  charge  accounts  are  transferred  to  the  Administrative 
Books  where  they  are  closed  into  the  Income  Account  at  the  end  of  the 
year.  This  leaves  the  actual  and  accrued  charges  against  operations 
which  must  be  distributed  either  to  current  expense,  prepaid  expense  or 
to  assets  accounts. 


CHAPTER  VIII 

DISTRIBUTION  OF  DISBURSEMENT  CHARGES 

When  there  has  been  recorded  upon  the  books  the  Actual  Disburse- 
ments of  Labor,  Bills  Audited  and  Supplies,  Shops  and  Power,  and  the 
Accrued  Disbursements  of  Accident  Liability,  Taxes  accruing,  and  Bullion 
Freight  and  Refining  Expense  Accruing,  and  Selling  Expense  Accruing, 
etc.,  it  is  then  necessary  to  segregate  and  distribute  these  disbursement 
charges  to  the  proper  operating  departments  of  expense,  prepaid  expense 
and  assets  as  shown  by  Chart  4. 

All  of  the  disbursements  of  any  one  month  are  not  chargeable  to  the 
month's  expense  of  production,  but  contain  charges  applicable  to  Prepaid 
Expense  and  to  Assets,  as  well  as  to  Reserve  Accounts.  Therefore,  it  is 
necessary  to  determine  what  portion  is  chargeable  to  each  period's  pro- 
duction and  what  portion  is  not  in  order  that  the  operating  profit  or  loss, 
and  the  cost,  for  each  period  may  be  determined,  and  what  charges  are  to 
be  carried  as  assets  and  what  as  prepaid  expense. 

This  could  be  obtained  simply  by  keeping  segregations  for  all  charges 
to  Reserve  Accounts,  to  Asset  Accounts,  Prepaid  Expense  and  Develop- 
ment, debiting  the  proper  controlling  and  subsidiary  Assets,  Prepaid 
Expense,  Development  Accounts,  etc.,  with  the  amounts  deteremined, 
leaving  in  the  Actual  and  Deferred  Disbursement  Accounts  only  such 
amounts  chargeable  to  production. 

While  this  would  meet  the  requirements  of  accounting  as  far  as  record- 
ing the  charges  to  assets,  production,  etc.,  and  the  determining  of  the 
profit  for  each  period,  nevertheless,  it  would  not  give  the  information 
necessary  to  locate  the  reason,  or  cause  of  fluctuations  in  production 
disbursements,  nor  the  information  that  would  enable  the  determining  of 
the  cost  for  each  of  the  different  production  departments,  nor  would  it 
give  the  necessary  controls  needed  to  obtain  departmental  costing. 

Therefore,  the  detailing,  recording  and  compiling  of  the  disbursement 
charges  to  each  operating  department,  department  unit,  etc.,  is  done  by 
the  Cost  Department  in  order  to  determine  Operating  Costs.  This  is 
Cost  Accounting  and  will  be  fully  illustrated  in  the  chapters  on  this 
subject.  However,  the  accounting  records  and  cost  records  must  inter- 
lock, therefore,  the  summaries  of  the  cost  segregations  showing  the 
charges  to  Departmental  Expense  Accounts,  Departmental  Prepaid  Ex- 
pense Accounts  and  to  Asset  Accounts,  according  to  Chart  4,  are  the 

76 


DISTRIBUTION  OF  DISBURSEMENT  CHARGES  77 

basis  of  the  entries  in  the  operating  journal  for  posting  to  the  operating 
ledger  and  the  operating  subsidiary  ledger,  and  the  journal  entries  for 
the  accounting  records  are  made  up  from  these  cost  summaries  of  Direct, 
Indirect  and  Accrued  Disbursements,  and  of  Prepaid  Expense.  The 
operating  ledger  will  have  the  regular  rulings,  while  the  operating  journal 
should  be  a  three  column  journal. 

DISTRIBUTION  OF  DIRECT  DISBURSEMENTS 

The  cost  segregations  of  the  Direct  Disbursements  of  Labor,  Supplies 
Issued,  and  Bills  Audited  are  summarized  into  Expense,  Prepaid  Ex- 
pense and  Asset  Accounts  as  shown  on  Chart  IV  and  Journalized  as  shown 
hereafter  on  Forms  No.  50. 

Labor. — A  Journal  entry  is  made  of  the  cost  segregations  of  labor 
(Form  No.  50)  showing  the  total  charges  to  the  general  operating  accounts 
and  crediting  the  labor  charge  to  operations,  as  follows: 

Expense 

Exploration  and  Development $  6 ,  654 .  53 

Ore  Extraction 38,720.00 

Ore  Transportation 995 .  81 

Smelting 178. 50 

Operating  Overhead 2,183.40 

Prepaid  Expense 

Repairs 566 .  52 

Replacements 10 .  76 

Assets 

Construction  and  Equipment 6, 167.27 

Materials  and  Supplies 728 .  46 

Accounts  Receivable 467 .  08 

Reserves 

Reserve  for  Accidents 334 .  50 

To  Labor $57,006. 83 

This  credit  to  Labor  together  with  the  credit  for  the  amount  charged 
to  Shops  and  Power  closes  out  the  total  pay-roll  charges  to  operations 
for  labor.  The  detail  charges  of  the  general  accounts  are  posted  direct 
from  the  cost  summaries  to  the  cost  ledger  and  are  not  journalized. 

Supplies  Issued. — The  cost  summary  of  the  segregations  of  supplies 
issued  showing  the  total  supply  charges  to  each  general  account  is  used 
for  the  journal  entry  to  close  out  the  Supplies  Issued  charge  to  operations, 
as  in  the  case  of  labor,  as  follows: 


78  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Expense 

Exploration  and  Development $4,249. 41 

Ore  Extraction 8,067.66 

Ore  Transportation 8 .  43 

Operating  Overhead 3 .  93 

Prepaid  Expense 

Repairs 1 ,360.92 

Replacements 813 .  49 

Assets 

Construction  and  Equipment 6 ,  607 .  02 

Materials  and  Supplies 1 1 .  65 

Accounts  Receivable 4 ,  166 .  10 

Reserves 

Reserve  for  Accidents 2 .  94 

To  Supplies  Issued $25,291 .55 

This  amount  together  with  the  amount  charged  Shops  and  Power 
closes  out  the  total  Supplies  Issued  charged  to  operations  by  the  Store- 
keeper in  charge  of  the  warehouse.  The  detail  charges  to  sub-depart- 
ments, etc.,  are  posted  direct  to  the  cost  ledger  the  same  as  done  with 
Labor  charges. 

Bills  Audited. — The  summary  of  the  segregations  of  the  Bills  Audited 
Record  showing  the  total  expense  charged  to  each  general  account  is 
used  for  the  journal  entries  the  same  as  with  Labor  and  Supplies  Issued 
to  close  out  the  amount  of  Bills  Audited  charged  to  operations,  as  follows: 

Expense 

Ore  Extraction $      533 .  51 

Ore  Transportation 1 ,982.73 

Smelting 30,662.42 

Operating  Overhead 1 ,047. 99 

Prepaid  Expense 

Unexpired  Insurance 1 ,  308 .  68 

Materials  and  Supplies 38,426.91 

Assets 

Construction  and  Equipment 1 ,  323 .  75 

Accounts  Receivable 2 ,  517 .  92 

Reserves 

Reserve  for  Accidents 5 .  00 

Reserve  for  Freight  and  Refining  Not  Due 15,798. 78 

To  Bills  Audited $93,607.69 

This  amount  plus  the  amounts  charged  the  Shops  and  the  Power 
Accounts  closes  out  the  amount  of  Bills  Audited  charged  to  operations 
for  the  month. 

DISTRIBUTION   OF  INDIRECT  DISBURSEMENTS 

Having  entered  in  the  Indirect  Disbursement  Accounts  of  Shops  and 
Power  all  the  charges  from  the  Direct  Disbursement  Accounts  and  from 


DISTRIBUTION  OF  DISBURSEMENT  CHARGES  79 

Prepaid  Expense  chargeable  to  the  month's  operations,  distributions  of 
these  indirect  disbursement  charges  can  be  made. 

Shops. — A  journal  entry  to  cover  Shop  charges  to  operations  is  made 
from  the  summary  of  cost  segregations,  as  follows: 

Expense 
Ore  Extraction $     213.51 

Prepaid  Expense 

Repairs 2,182.01 

Replacements 300 .  36 

Assets 

Construction  and  Equipment 5,290.92 

Materials  and  Supplies 586 .  65 

Accounts  Receivable 74 .  40 

To  Shops $8,647.85 

The  posting  of  the  detail  shop  charges  are  handled  as  in  the  case  of 
Labor,  Supplies,  Etc. 

Power. — The  charges  to  power  are  closed  out  to  the  proper  operating 
accounts,  etc.,  by  journal  entry  according  to  the  cost  segregations  of 
Power,  the  summary  charges  to  general  accounts  only  being  used,  as 
follows: 

Expense- 
Development $2,278.48 

Ore  Extraction 6,750.96 

Assets: 

Materials  and  Supplies 16 .  86 

To    Power ~~ $9,046.30 

closing  our  December  Power  charges  to  operation. 

DISTRIBUTION  OF  ACCRUED  DISBURSEMENTS 

When  charges  are  made  to  the  Accrued  Accounts  instead  of  directly 
to  the  expense  accounts  it  is  necessary  to  close  out  the  accrued  charges  to 
operating  accounts  by  journal  entry  for  posting  to  general  ledger,  as 
follows: 

Operating  Overhead $12 ,  416 .  42 

To  Accident  Liability $2,695.35 

Taxes    Accruing 9,721.07 

charging  out  the  amount  of  Accident  Liability  and  Accrued  Taxes  for 
the  month. 

Bullion  Freight  and  Refining $14,320.45 

To   Bullion   Freight  and  Refining  Accrued $14,320.45 


80  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

closing  out  the  accrued  freight  and  refining  charges  on  the  month's 
production. 

Selling  Expense $3,992.35 

To  Selling  Expense  Accrued $3,992.35 

charging  out  the  estimated  accrued  selling  expense. 

On  account  of  the  small  number  of  journal  entries  necessary  to  take 
care  of  the  Accrued  Charges  complete  entries  may  be  made  in  the  general 
j  ournal  for  postings  both  to  the  general  and  the  cost  ledger,  in  which  case 
the  entries  for  posting  to  the  cost  ledger  are  made  in  the  subsidiary- 
journal  column. 

DISTRIBUTION  OF  PREPAID  EXPENSE 

While  the  closing  out  of  the  Indirect  Disbursements  of  Shops  and 
power  disbursements  would  naturally  follow  in  regular  order  after  the 
Direct  Disbursements.  However,  on  account  of  the  Prepaid  Expense 
that  it  is  required  to  include  in  each  month's  Shop  and  Power  expense 
it  is  necessary  first  to  close  out  the  previous  month's  prepaid  expense 
charges  of  Repairs,  Replacements,  etc.,  in  order  to  obtain  the  charges 
applicable  to  Shops  and  Power. 

Repairs. — The  amount  of  each  month's  repairs  are  charged  to  the 
Repair  Account  and  then  a  journal  entry  is  made  for  the  total  operating 
repairs  of  each  month  as  shown  by  summary  of  cost  segregations,  and 
which  are  chargeable  to  the  month's  operations,  as  follows: 

Ore  Extraction $2,397. 17 

Power 1 ,566. 98 

Ore  Transportation 138 .  80 

Reserve  for  Accidents 6 .  50 

To    Repairs $4,109.45 

These  general  charges  are  posted  to  the  general  ledger  and  the  detail 
charges  are  posted  direct  from  cost  summaries  to  the  cost  ledger. 

While  repairs  are  shown  as  a  prepaid  expense,  they  are,  as  a  rule, 
charged  out  in  the  same  month  in  which  they  were  created  unless  the 
repair  charge  is  not  completed  in  one  month,  in  which  case  it  is  carried  in 
the  Repair  Account  until  completed  and  then  charged  out. 

Replacements. — When  the  Depreciation  charge  is  based  on  an  average 
life  of  equipment  the  amount  of  replacements  necessary  to  prolong  the 
average  life  of  each  item  of  equipment  to  the  length  of  life  estimated  is 
charged  to  operation. 

The  total  operating  replacements  as  shown  by  summary  of  cost  segre- 
gations of  the  previous  month  is  charged  to  operation  by  journal  entry 
and  is  posted  to  general  ledger,  as  follows: 

Ore  Extraction $     326. 45 

Power 1 ,044. 76 

To    Replacements $1,371.21 


DISTRIBUTION  OF  BISBURSEMENT  CHARGES  81 

closing  out  previous  month's  replacements.  When  a  replacement  re- 
quires more  than  1  month  to  complete,  it  is  not  charged  out  until  the  job 
is  finished. ' 

Unexpired  Insurance. — When  the  Fire,  Boiler  and  other  insurance  is 
paid  the  first  of  each  year,  the  total  amount  for  the  year's  insurance 
is  charged  to  Unexpired  Insurance  and  each  month  one-twelfth  of  the 
amount  is  closed  out  to  Operating  Expense,  as  follows: 

Operating  Overhead $109 .  30 

To   Unexpired   Insurance $109. 30 

the  month's  proportion  of   Property  Insurance. 

Suspense. — Charges  are  made  to  Suspense  for  advances  to  agents  or 
employes  of  cash,  and  when  the  account  of  the  advance  is  turned  in  a 
voucher  is  made  showing  the  proper  distribution  and  is  entered  in  the 
Bills  Audited  Record  and  a  cheque  for  the  proper  amount  is  drawn 
payable  to  the  company  and  shown  in  the  Cash  Book  to  the  Credit  of 
Suspense.  All  other  charges  or  credits  to  Suspense  are  on  account  of 
oversights  in  compiling,  or  are  accounting  error  and  are  cleared  the  fol- 
lowing month,  or  when  corrected  by  journal  entry. 

DISTRIBUTION  OF  DEFERRED  DISBURSEMENTS 

The  Deferred  Disbursement  charges  of  Depletion  of  Mine  and  Depre- 
ciation of  Equipment  are  not  distributed  but  are  charged  direct  to 
Profit  and  Loss  Account. 

The  Reserve  for  Depletion  of  Mines  is  transferred  at  the  end  of  the 
year  to  the  Administrative  books.  The  Reserve  for  Depreciation  of 
Equipment  is  kept  upon  the  Operating  Books,  and  whenever  any  unit  of 
the  original  equipment  is  discarded  and  new  equipment  is  purchased  to 
take  its  place,  a  charge  is  made  to  Reserve  for  Depreciation  of  Equip- 
ment, offset  by  a  credit  to  the  old  equipment  account,  for  the  amount  of 
cost  of  the  original  equipment  renewed,  as  shown  by  the  books. 

The  amount  of  the  new  equipment  should  not  be  charged  direct  to 
Reserve  for  Depreciation,  as  by  so  doing  the  old  account  is  not  closed 
out  and  a  record  of  the  new  equipment  would  not  be  shown  in  the  equip- 
ment account. 

The  amount  of  the  new  equipment  should  be  charged  to  a  new  equip- 
ment account  and  if  the  cost  is  in  excess  of  the  old  equipment,  only  an 
amount  equal  to  the  cost  of  the  equipment  replaced  should  be  charged 
Reserve  for  Depreciation. 

If  the  equipment  at  one  shaft  or  mine  is  abandoned  the  amount  of 
the  depreciation  reserve  against  such  equipment  can  be  utilized  to  take 
care  of  the  purchase  of  new  equipment  elsewhere,  or  it  can  be  transferred 
to  the  Administrative  Books  and  distributed  as  Capital  Dividends,  tax 


82  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

free,  if  so  desired,  as  provided  in  Article  1549  of  Treasury  Department 
Regulations  No.  45. 

MISCELLANEOUS  CREDITS  AND  CHARGES 

Occasionally  work  done  in  some  one  of  the  operating  departments 
is  not  chargeable  to  production  or  company  operations.  In  such  cases 
credits  are  given  the  proper  operating  department  by  a  charge  to  Accounts 
Receivable  and  the  subsidiary  accounts  are  shown  on  the  operating  journal 
along  with  general  accounts,  as  follows: 

Accounts  Receivable $  63 .  26 

D.  A.  C.  Co $  63.26 

To  Operating  Overhead,  Employment  Office 63 .  26 

"Amount    of    present    month's    employment    office    expense 
chargeable  to  D.  A.  C.  Co.,  as  per  cost  segregations." 
and 

Accounts    Receivable $149 .  35 

D.  A.  C.  Co $149.35 

To  Ore  Extraction 149.35 

Assaying 149 .  35 

"Amount  of  present  month's  assaying  chargeable  to  D.  A.  C. 
Co.,  as  per  cost  segregations  " 

These  entries  really  cover  Sales  of  service  and  technically  should  be 
treated  as  Sales  entries.  However,  in  practice  they  are  generally  consid- 
ered as  disbursement  credits. 

Sometimes  after  an  invoice  for  materials  purchased  has  been  dis- 
counted, or  paid  in  regular  course,  it  is  found  that  an  over-payment  has 
been  made  on  account  of  shortage  in  the  shipment,  or  error  in  invoice 
extension,  or  failure  to  subtract  freight,  etc.  In  such  cases,  material 
stocks  are  credited  and  charge  made  against  the  seller  through  Accounts 
Receivable. 

Also,  when  a  credit  has  been  taken  on  account  of  a  supposedly  over- 
charge in  price  or  minus  quantity  of  materials,  or  amount  of  freight,  it  is 
found  that  the  credit  was  taken  in  error,  a  charge  to  the  account  that 
was  credited  must  be  made  and  the  person,  firm  or  company  charged  must 
be  credited,  as  follows : 

Materials  and  Supplies $9.41 

Oils  and  Greases $9.41 

To  Accounts  Receivable 9.41 

Bill  No.  352 9.41 

"Amount  of  freight  charged  to  A.  A.  P.  P.  Co.  in  error." 

SUMMARY  OF  DISBURSEMENT  BALANCES 

A  summary  of  the  balances  of  the  Disbursement  Accounts  could  be 
taken  from  the  ledger  now  that  all  disbursement  entries  have  been  made. 
However,  such  a  statement  would  be  of  little  value  due  to  the  fact  that 


DISTRIBUTION  OF  DISBURSEMENT  CHARGES  83 


only  the  disbursement  part  of  the  period's  business  had  been  entered  upon 
the  books  and  that  some  of  these  entries  involved  the  results  of  previous 
periods. 

Therefore,  the  accounting  for  Production,  Sales,  Receipts  and  Cash 
must  be  completed  before  compiling  a  statement  of  the  condition  of 
operations. 

However,  in  order  to  summarize  the  different  departments  of  Oper- 
ting  Expense  so  as  to  condense  and  simplify  the  operating  statement  to  be 
made  showing  the  condition  of  the  business,  a  closing  entry  is  made,  as 
follows : 

Ore  Extraction $56,859.91 

Ore  Transportation 3, 125.77 

Ore  Treatment 30,840.92 

Operating  Overhead 15,697.76 

Bullion  Freight  and  Refining 14,320.45 

Selling 3.992.35 

Total  Operating  Expense $124,837. 16 

"Closing  out  Departmental  Operating  Expense  for  the 
month  to  Total  Operating  Expense  Account." 

We  have  now  taken  care  of  our  Disbursement  Accounting  and  are 
ready  to  proceed  with  the  accounting  of  Production,  etc. 


CHAPTER  IX 

PRODUCTION 

When  a  mine  has  entered  the  production  stage,  a  record  must  be 
kept  of  the  mine  product  from  the  time  that  it  is  mined  as  a  raw  material 
until  it  is  refined  and  made  into  a  finished  product  ready  for  sale,  and  it 
is  required  that  the  different  production  departments  of  mining,  milling, 
smelting  and  refining  shall  keep  the  Accounting  Department  advised  of 
the  progress  of  production  from  the  time  the  broken  ore  is  sampled  until 
the  finished  product  is  delivered  to  the  Sales  Department. 

PRODUCTION  ACCOUNTS 

Mine  Production  usually  consists  of  three  classes: 

Principal  Production, 

By-products  from  Principal  Production,  and 

Secondary  Production. 
Some  mines  produce  only  one  product,  others  produce  by-products,  such 
as  gold  and  silver  along  with  the  principal  product  of  copper  or  lead, 
etc.,  while  other  mines  will  have  a  principal  product  with  by-products 
and  will  also  produce  a  secondary  product  which  may  be  handled  in  the 
company's  reduction  works  or  shipped  to  custom  smelters. 

As  the  production  is  created  a  record  of  it  is  made  upon  the  books 
by  accounts  as  shown  on  Chart  VIII. 

As  a  guide  in  determining  the  accounts  that  are  to  be  kept  and  the 
forms  that  will  be  necessary  to  properly  record  the  product  in  its  different 
stages,  a  Production  Chart  (No.  IX)  should  be  drawn  showing  the  product 
in  the  operating  stages  of  which  a  record  will  need  to  be  kept.  When  this 
has  been  done  it  can  be  clearly  seen  what  accounts  and  forms  it  will  be 
necessary  to  create. 

INVENTORY  OF  PRODUCTION 

As  a  rule  the  mine  production  of  crude  ore  is  carried  upon  the  books 
at  cost  of  production,  also  the  mill  production  of  concentrates  is  carried 
at  cost.  However,  the  smelter  production  of  blister  copper  or  lead  as 
well  as  the  unsold  refined  metal  is  usually  carried  at  an  inventory  price  of 
an  even  figure  during  the  year  to  simplify  the  accounting  and  adjusted 
at  the  end  of  the  year  to  actual  cost  or  market  whichever  method  has 
been  adopted. 

84 


PRODUCTION 


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ft 

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PRODUCTION  87 

When  there  is  a  large  amount  of  unsold  metal  at  the  end  of  the  fiscal 
year,  and  the  market  is  declining  and  dull,  to  inventory  the  metal  at  the 
market,  or  near  thereto,  would  result  in  showing  the  year's  operations 
as  greater  than  could  reasonably  be  expected  to  be  obtained.  Therefore, 
the  unsold  production  should  always  be  carried  at  cost,  or  at  an  inventory 
price  sufficiently  under  the  market  as  not  to  show  a  fictitious  profit 
at  the  end  of  the  year  when  there  is  a  large  percentage  of  the  year's 
production  unsold. 

Regardless  of  the  method  used  in  inventorying  the  unsold  produc- 
tion for  monthly  information  of  the  Manager,  the  inventories  will  have 
to  conform  to  the  requirements  of  the  Treasury  Department  in  making 
Returns  for  Federal  Taxes  at  the  end  of  each  year. 


PRODUCTION  METHODS 

In  mining  there  are  two  production  units  of  measurement: 

The  Mine  Unit,  and 

The  Content  of  the  Mine  Unit  or  Marketable  Unit. 

The  Mine  Production  Unit  is  inveritably  the  short  ton.  The  Content 
Unit  is  the  marketable  unit  of  pound,  ounce,  etc.,  on  which  a  price  is 
quoted,  and  product  sold. 

The  final  production  cost  is  based  on  the  market  unit,  although  the 
costs  at  the  mine,  mill  and  smelter  are  usually  figured  on  the  mine  unit 
of  a  ton.  Therefore,  it  is  necessary  to  determine  the  content  or  market- 
able unit  as  soon  as  practicable  in  order  to  know  the  actual  marketable 
production  for  each  period  of  operation. 

There  are  in  practice  at  present,  three  methods  of  determining  the 
production  for  the  period  of  operation: 

1.  The   recoverable    contents   of   mined   ores   sampled   at   smelter. 

2.  The  recoverable  contents  of  mill  concentrates  sampled  at  smelter. 

3.  The  recoverable  contents  of  blister  production  of  smelter. 

The  character  of  the  ore  and  the  method  of  treatment  determines  which 
method  of  determining  production  is  used.  However,  in  each  of  these 
methods  the  amounts  of  "Ores  Mined  and  On  Hand,"  ''In  Transit,"  or 
"In  Process"  are  carried  in  suspense  at  cost.  The  first  method  is  the 
one  mostly  used  as  it  is  the  one  applicable  to  mines  producing  direct- 
smelting  ores  and  will  be  the  method  used  in  the  illustrations  to  follow. 

MINE  PRODUCTION 

The  Accounting  Department's  record  of  the  ores  mined  begins  when 
the  ore  is  withdrawn  from  the  chutes  and  placed  in  the  shipping  bins. 
As  the  ores  are  withdrawn  from  the  stope  chutes,  or  as  mucked  from 
development  headings  or  prospects,  a  grab  or  chute  sample  is  taken 
from  each  car  and  placed  in  the  chute  sample  box  at  each  chute,  and 


88 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


the  number  of  cars  taken  are  pegged  on  the  board  at  each  chute.  These 
chute  samples  are  then  collected  each  day  by  the  production  sampler 
who  makes  out  a  sample  tag  showing  the  date,  character  and  cars  of  ore, 
the  level  number,  the  stope  number  and  the  chute  number,  as  well  as 
the  metals  for  which  assays  are  to  be  made.  This  sample  tag  accompa- 
nies the  ore  to  the  assay  office  where  the  ores  are  assayed,  and  the  informa- 
tion on  the  card  as  to  the  quantity  and  assay  value  of  ore  that  has  been 
dumped  in  the  shipping  bins  is  compiled. 


CH 

ASSAY    REPORT 

i 

SHATTUCK-AI 
CTES 

JZONA  COPPER  COMPANY 

1S7 

CARS 

GRADE 

PLACE 

LEVEL 

oz. 

AU. 

OZ. 
AG. 

CL\ 

I'NITs 

UNITS 

1XS. 

12 

Hi-Grade 

3  Stope    Ch  120 

4i0 

.02 

54.4 

43.4 

12 

.. 

..     3.7 

.. 

.02 

50.4 

43.7 

3 

Oxide 

5      -          23  xc 

200 

.02 

26.4 

6.0 

25 

Hi-Grade 

10    ••          Ch  145 

400 

.02 

43.0 

19.3 

4 

..        .. 

1      ••           '■     120 

900 

.01 

14.4 

11.6 

44 

Oxide 

19    ••          ••     193 

500 

11.5 

31 

21    '•           "    177 

5oO 

9.9 

37 

59  Prosp.  ••   189 

500 

13.9 

26 

•■ 

8    Stope    ••    104 

Mi 

23.1 

16 

■• 

11      »        8  xc 

•• 

8.1 

29 

•• 

2        >•       Ch  223 

800 

13.4 

45 

■• 

12      •■         ••   195 

•• 

12.9 

23 

•• 

212 

•■ 

1L8 

| 

" 

O.E.WHITE 

Assay  er. 

Form  19. 
REPORT  OF  MINE  PRODUCTION 


As  the  samples  of  each  day's  mine  production  are  assayed,  there  is 
listed  on  Form  No.  19,  in  order  first  as  to  level  and  next  as  to  stope  and 
chute  numbers,  the  information  necessary  to  determine  the  production 
and  value  of  production  from  each  stope  or  place  in  the  mine  from  which 


PRODUCTION  89 

ore  is  being  produced,  and  a  copy  of  this  report  is  sent  to  the  Accounting 
Department  for  its  information  in  recording  the  mine  production  on 
Form  No.  47  and  for  the  use  of  the  Cost  Accounting  Department  in  deter- 
mining tonnage  costs. 

REPORT  OF  ORES  LOADED  AND  SHOPPED 

As  the  ores  are  loaded  from  the  bins  into  railroad  cars,  the  cars  are 
tagged  and  a  report  of  each  railroad  car  loaded  is  sent  to  the  Accounting 
Office,  and  each  day  the  Accounting  Office  makes  a  report  to  the  smelter 


SHATTCCK  ARIZOJTA  COPPEB  COMPASr 

REPORT   OF  ORE   LOADED 


Bisbee,  Arizona_ 

Calumet  &  Arizona  Mining  Company, 

Douglas,  Arizona. 
Gentlemen:    We  are  today  shipping  the  following  cars: 


Yours  truly, 
SHATTUCK  ARIZONA  COPPER  CO. 


By- 


Fobm  20. 

(Form  No.  20)  of  the  total  number  of  cars  of  ore  shipped.  As  soon  as  the 
Weight  and  Moisture  Certificate  (Form  No.  21)  is  received  from  the 
smelter,  and  the  smelter  sampler's  report  (Form  No.  22)  is  received  and 
checked  against  the  Weight  and  Moisture  Certificate,  the  Record  of  Ore 
Shipments  to  the  Smelter  (Form  No.  23)  is  written  up  from  the  infor- 
mation contained  on  Forms  No.  20,  21  and  22. 

The  matter  of  correct  weights  of  ore  shipments  is  a  very  important 
item,  and  means  of  checking  the  scale  weights  should  be  devised  to 
protect  against  under  weighing. 


90 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


At  the  end  of  each  month  the  Ore  Shipments  Record  is  balanced  and 
reconciled  with  the  smelter  record  so  as  to  show  tonnages  of  ores  shipped 
and  on  hand  at  mine  and  smelter,  and  a  journal  entry  is  made  for  the  ore 
on  hand,  as  follows: 


Ores  on  Hand  at  Cost $5,352.80 

To  Ore  and  Bullion 

"287.504  Dry  Tons  of  ore  on  hand  at  end  of  month  at  mine, 
and  277.777  Dry  Tons  of  ore  at  smelter  at  cost." 


$5,352.80 


CALUMET  &  ARIZONA  MINING  CO. 

SMELTER  DEPARTMENT 


WEIGHT  AND  MOISTURE  CERTIFICATE 

i«i 

SHATTUCK-ARIZONA  MINING  CO.,  Bisbee,  Arizona 

GENTLEMEN:     Wc  Rpon  tktfoOowac  or  renind: 

CAR 

D»te 

LOT  NO. 

WEIGHT 

MOISTURE 

WEIGHT 

No. 

Ia'L 

Sattkct 

Mat 

OroM 

Tor 

Net 

Drtermbed 

C,  rr,~c 

Dr  Or 

//?% 

£u) 

«w 

atj.^  o 

¥VUo 

/Ofl\k 

ILfo 

s 

V 

/•f-yvoo 

H^Uo 

/Ol-fTrt 

w 

<^ 

s 

-*" 

/J-3980 

trilo 

ioi  i  to 

/in 

/ 

s 

^     / 

JSUot, 

</J?y« 

<?i/rLo 

y 

mi 

,Si 

L 

/ml 

4f)f)  A-,0 

Wy 

^J 

Zfllio 

/rtnia 

tflWla 

k> 

wt 

7UWX 

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1 

A 

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/ 

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)<MU% 

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For 

Yowivcry  TuJy. 

CAL 

u  21. 

-4 

m 

m 

Smelter  Clerk 

At  the  same  time  these  accounts  are  cleared  of  the  ore  on  hand,  the 
first  of  the  preceding  month  by  entry,  as  follows: 


Ore  and  Bullion $7  352  25 

To  Ores  on  Hand  at  Cost 

"Amount  of  ores  on  hand  at  mine  and  smelter  the  first  of 
previous  month." 


$7,352.25 


Instead  of  recording  the  ores  on  hand  at  cost  there  could  be  carried  in 
an  Ore  Production  Account  and  the  total  ore  production  at  cost  could  be 
charged  to  this  account  at  end  of  each  month  or  period,  and  credit  for  the 
amount  of  ore  smelted  or  treated  could  be  made  which  would  give  the 
same  results  as  inventorying  the  Ores  on  Hand  at  end  of  each  accounting 
period,  as  illustrated  above. 


PRODUCTION 


91 


However,  as  it  is  more  difficult  to  record  the  Ore  Production  by  the 
latter  method,  it  is  seldom  used. 

Next  in  order  it  is  necessary  to  determine  the  contents  of  the  ores 
treated  or  smelted  in  order  that  the  mine  production  can  be  ascertained. 

SHATTUCK    ARIZONA    COPPER    CO. 

SAMPLER    RECORD 


Date  Shipped  6-11-1919      Kind  of  Ore     Oxide- 
Weather  Conditions  During  Transit         Pair 


Lot  No.       64 


Date  Received  _6_ 
Date   Sampled  


13   -  1919 


ORE    RECEIVED 


MOISTURE   DETERMINATION 


CARS 

WEIGHTS 

— « 

HO. 

co- 

W. 

M*T 

1598 

nns 

4390 

6722 

1 

TOTAL* 

□  ATE 

TIME 

TEMP. 

GROSS 
WEIGHT 

A     M. 

P.    M. 

. 

— 

Same  ao  Lot  53         5. 37^ 

Loss  in  Weight      

Weight  of  Sample  (         lbs. )    

Moisture  %  = 
Gross  Weight=Ore  plus  Pan's  Weight 

METALLICS 


3-8   SIZE   DETERMINATION 

.... 

WIICMT    OP    »AMPt.k    TAKEN 

wciGKT  op  ovcuaizi 

,..C««,0,OV...,Z. 

remarks:  This  is  a  part  car   of  lot  53,which  did  not  arrive  with  that 

Shipment,    as   it  is  difficult  to   secure  a  fair  sample  from  such  a  Bmall 
lot.  By  arrangement  with  Mr.    Cole  sample   of  Lot  53  applies  to  this 
Lot  54. 


comparative  analysis 


•  *..n  orilN[B 

cu. 

AU.      1      AO.            PB. 

INSOL. 

H.O. 

REMARKS 

T«A.   MM 

pml»  MSM 

■— 

Form  22. 

CONTENTS  OF  ORES  SAMPLED  FOR  TREATMENT 

At  the  time  that  the  moisture  sample  is  taken  of  each  lot  of  ore 
received  at  the  mill  and  smelter,  an  assay  sample  is  also  taken.  This 
sample  is  then  generally  reduced  by  crushing  and  quartering  to  about 


92 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


2  lb.  and  then  is  divided  into  four  portions  of  about  9  oz.  each.  One  of 
these  portions  is  assayed  by  the  smelter's  assayer,  the  other  by  the  mine's 
assayer,  and  the  remaining  two  portions  are  sealed  by  the  samplers 


<-  ' 

■_:k_:: 

-t1 

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if  i     it 

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9  ?    1 

representing  both  mine  and  smelter,  and  are  held  for  use  of  the  umpire 
in  case  of  disagreement  between  the  mine  and  smelter  as  to  the  assay 
contents  of  each  lot. 


PRODUCTION 


93 


As  soon  as  the  assay  content  of  each  sample  is  determined  each 
by  the  mine  and  the  smelter,  the  assay  results  are  recorded  and  a  com- 
parison is  made,  and  if  the  results  are  within  certain  limits,  the  dif- 
ferences are  usually  split  and  a  settlement  agreed  upon.  If  the  differences 
in  assay  results  are  not  within  specified  limits,  repeat  assays  are  run  and 
recorded,  and  then  if  the  differences  are  not  within  splitting  limits  one  of 
the  umpire  samples  are  sent  to  an  umpire  for  final  determination.  As 
soon  as  an  agreement  has  been  reached  upon  all  assay  contents  a  Settle- 
ment Assay  Certificate  (Form  No.  24)  is  issued  by  the  smelter  for  each  lot  of 
ore  and  this  settlement  assay  together  with  the  final  assays  of  both  mine 
and  smelter  and  of  the  umpire,  when  obtained,  are  entered  on  the  Settle- 
ment Assay  Record  of  Ore  Sampled  (Form  No.  25). 

CALUMET  &  ARIZONA  MINING  COMPANY 


Shipper  Shattucfc  Oxide. 

SMELTER  DEPARTMENT 

Douglas.  Ariz.. 

July.  13 

.  192 

0 

LOT  NUMBERS 

CAR 

NUMBERS 

ANALVS.S 

OUNCES  PER  TON 

-«« 

—■ 

■A 

% 

AM>, 

% 

% 

CaO 

s 

a 

% 

* 

% 

* 

— 

— 

5976 

119 

1564 

1567 

37. 1 

3.9 

25.0 

1.7 

13.1 

5.9T 

1.84 

.019 

1 

Gates. 


Form  24. — Settlement  Assay. 


At  the  end  of  each  month  this  record  is  totaled  and  averaged  in 
order  to  show  whether  the  mine  or  the  smelter  is  getting  the  better  of  the 
averaging  of  assays. 


RECORD  OF  SMELTER  SETTLEMENTS  FOR  ORE  SAMPLED 

As  each  Settlement  Assay  Certificate  is  received  for  each  lot  of  ore 
sampled,  the  settlement  assays  are  recorded  upon  the  Record  of  Smelter 
Settlements  of  Ore  Sampled  (Form  No.  26)  at  the  same  time  the  wet  and  dry 
weights  of  each  lot  are  recorded  on  the  Smelter  Settlement  Sheet.  As 
soon  as  settlement  for  each  week's  mine  or  mill  production  is  obtained,  a 
statement  of  the  week's  production  is  made  up  on  space  provided  on 
Form  No.  26  and  copy  of  the  week's  production  is  furnished  to  the  Pro- 
duction Superintendents  and  the  Manager  (Form  No.  27). 

At  the  end  of  the  month  the  Record  of  Smelter  Settlements  for  Ore 
Sampled  is  totaled  and  smelter  costs  and  production  determined  accord- 


94 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


- 
/ 
/ 
; 

a- 

5  J 
■       He 

-      1 

-- 

.  •»  — f— I — 

— H— f- 

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1 

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■ 

i 

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3 

| 

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fa         x 
O       3 

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-" 

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< 

- 

E  SMELTED.  M( 

UMPIRE  ASSAYS 

- 

:=:     " 

o    g; 

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M 

v. 

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s 

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— 

- 

PRODUCTION 


95 


96 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


ing  to  schedule,  and  a  record  is  made  upon  the  books  for  the,  principal 
product  by  a  journal  entry,  as  follows: 

Unsold  Copper $106, 180. 00 

To  Ore  and  Bullion $106, 180. 00 

"Amount  of  recoverable  copper  in  ores  sampled  at 
smelter  during  the  month  figuring  copper  at  12M  cts.  per 
pound." 

This  records  the  amount  of  the  recoverable  principal  production  from 
the  mine  product,  upon  the  books  at  an  average  figure. 

Statement  of  Weekly  Production 
August,  1920 


Wet 
Tons 

Per 

Cent, 
Mois. 

Dry 
Tons 

Recov. 

Per 

Cent, 

Cu 

Lbs.,     j   Ozs. 
Copper      Au 

Ozs., 
Ag 

1st  Period 

334.340 
549.640 
331.050 

5.88 
5.45 
4.99 

314.687 
519.674 
314.542 

5.42 
5.35 
6.55 

34,133 
55,547 
41,476 

9.19 
15.30 
15.77 

1,193 

2d  Period 

1,442 

3d  Period 

1,428 

Total 

1,215.030 

5.44 

1,148.903 

5.71 

131,156 

40.26 

4,063 

Form  27. 

A.s  the  unsold  copper  is  sold  the  above  production  must  be  reduced 
an  amount  equal  to  the  portion  sold,  which  is  taken  up  in  the  Sales 
Accounts  at  the  selling  price. 

If  the  principal  production  is  determined  from  the  amount  of  blister 
copper  produced  by  the  smelter  each  month,  then  the  record  of  the 
principal  production  will  be  based  upon  the  amount  of  recoverable  copper 
in  the  blister  copper. 


PRODUCTION  RECORD  OF  BY-PRODUCTS 

The  smelter  product  of  the  principal  production  usually  carries  by- 
products of  precious  metals,  the  recoverable  contents  of  which  must 
also  be  recorded  upon  the  books,  as  shown  by  Production  Sheet  No.  26,  if 
based  on  contents  of  ores  sampled,  or  by  Form  No.  32,  if  based  on  contents 
of  smelter  production. 

The  recoverable  by-products  having  been  determined  they  are  usually 
taken  up  on  the  books  at  an  inventory  price  below  the  present  market, 
or  at  the  average  market  price  of  the  previous  month,  by  a  journal 
entry,  as  follows : 


PRODUCTION 


97 


Due  for  Gold  and  Silver $10  631  70 

To  Gold  and  Silver  Sales $10  031  -tq 

"For  105.86  oz.  gold  at  $20.00  and  9,599  oz.  of  silver  at 
88.702  cts.,  being  the  price  of  silver  for  previous  month." 

When  silver  production  is  paid  for  at  a  price  ruling  on  a  certain  date,  the 
month's  production  of  silver  is  taken  up  on  the  books  at  inventory  price 
considerably  less  than  the  present  market  and  adjustment  made  upon 
date  of  settlement,  as  shown  by  Form  No.  41. 

THE  CONSOLIDATED  KANSAS  CITY  SMELTING  &  REFINING  CO. 

EL  PASO  SMELTING  WORKS  PLANT 

E!  Paso,  Texas, 12-8-20 jgj 


Bought  of  °hattuck-Arl2ona  Coppar 
Shipping  Point_ ri«b««.   Arl«. 


Total  value  c 
Less  freight 
Less  war  tax 
Less  demurrage 
Less  umpires 
Less  revenue  stamps 
Less. duties 


Form  28. 
PRODUCTION  OF  SECONDARY  PRODUCTS 

'  The    production    of    secondary  products  is  not,  as  a  rule,  of  large 
volume  and  such  production  is  usually  carried  on  the  books  at  cost  until 


98 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


n 

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PRODUCTION 


99 


settlements  are  received  therefor  from  smelters  or  agents  when  they  are 
taken  up  on  the  records  at  the  settlement  values,  as  shown  by  Form  29. 
Secondary  production  is  invariably  sold  to  custom  smelters  under 
contract  and  settlements  of  each  lot  shipped  are  made  in  accordance 
with  Form  28.  A  summary  record  of  such  settlements  is  kept  as 
shown  by  Form  29,  which  gives  all  the  information  necessary  to  determine 
the  production  and  the  expense  in  connection  therewith.  This  Form  29 
is  a  combined  production  and  sales  record  and  is  a  very  valuable  form 
for  mines  selling  their  product  direct  to  custom  smelters. 

MILL  PRODUCTION 

When  the  mine  production  is  milled  and  the  mill  concentrates  are 
delivered  to  the  smelter  instead  of  the  mine  ore,  a  separate  Record  of 
Ore  Shipments  (Form  23)  is  kept  of  the  ore  shipped  for  concentration, 


Concentrates  Shipments  Record                                                                         192 

Date 
Shipped 

Car 
Number 

Flotation 

Graiitj 

Lm 

No. 

Remarks 

Wet  Eta 

Dry  Tons 

Mois. 

Wet  Lbs 

Dr,  Tons 

Mois. 

Form  30. 

and  a  record  of  the  concentrates  shipped  to  smelter  is  kept  similar  to  Form 
30,  unless  the  concentrates  are  sold  to  the  smelter  when  a  production 
and  sales  record  is  kept  similar  to  Form  29. 

It  is  seldom  that  separate  mill  records  are  kept  of  the  different  proc- 
esses of  mill  production  as  crushing,  tabling,  grinding,  flotation,  etc., 
and  when  this  is  done  such  records  are  kept  in  connection  with  the 
metallurgical  records  and  cost  statistics,  which  are  treated  under  those 
heads.  However,  a  record  is  always  kept  of  the  quantity  and  assay 
contents  of  concentrates  produced,  generally  one  record  based  on  mill 
assays  and  the  final  record  based  on  settlement  assays,  in  order  to  ob- 
tain the  mill  recoveries  of  metals  in  ores  treated. 


SMELTER  PRODUCTION 

It  has  recently  become  the  accepted  practice  to  treat  the  smelter  as 
a  separate  organization  the  same  as  the  refinery,  even  when  the  smelter  is 
owned  and  operated  by  the  same  company  and  organization.  The 
smelter  handles  the  company's  ores  in  a  similar  manner  to  outside 
or  custom  ores,  either  making  a  flat  rate  to  the  mines  for  ores  of  certain 
contents,  and  extra  charges  for  variation  from  the  agreed  specifications,  or 


100 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


a  base  rate  with  premiums  and  penalties,  as  is  the  practice  of  custom 
smelters. 

This  enables  the  mine  to  obtain  a  very  simple  record  of  smelter 
production,  either  on  basis  of  ores  sampled,  or  of  blister  copper  produced 
and  leaves  all  the  complicated  smelter  production  and  metallurgical  records 
as  part  of  the  smelter  department. 


192 


Nichols  Copper  Company, 

Laurel  Hill,  Long  Island, 

New  York. 

On  or  after  the  deliverable  date  mentioned  below,  upon  surrender  of  this  certificate 
to  you  properly  endorsed,  you  will  deliver  at  your  refinery,  f.o.b.  cars  or  free  aboard, 
New  York  Harbor  Litherage,  to  the  order  of  our  Sales  Department,  the  number  of 
pounds  of  copper  set  forth  below  in  the  form  of  electrolytic  wire  bars,  cathodes,  cakes 
or  ingots  as  per  specifications. 


Lot  No. 


Pounds 
of  Copper 


Date  of 
Delivery 


Charges 


Ounces, 
Gold 


Ounces, 
Silver 


ABC  Mining  Company 


Secretary. 


Form  31. 


When  the  production  is  determined  upon  the  contents  of  ores  sampled, 
usually  a  warrant  against  the  refinery  is  given  the  Sales  Department  for 
the  amount  of  the  production,  as  shown  by  Form  31,  for  delivery  at  a  date 
sufficiently  advanced  in  the  future  to  enable  the  treatment  and  refining 
of  the  metal. 

When  the  production  is  based  upon  the  recoverable  contents  of  the 
blister  copper  produced,  the  order  to  the  Sales  Department  is  based 
upon  the  production,  as  shown  by  summarized  Form  32. 


PRODUCTION 
TRANSPORTATION  OF  SMELTER  PRODUCTION 


101 


Due  to  the  fact  that  a  refinery  generally  handles  the  product  of  a 
number  of  smelters,  it  is  very  seldom  that  the  refinery  is  in  the  same 
vicinity  of  the  smelter,  being  situated  close  to  the  consumers  of  copper 
and  cheap  labor  and  power,  and  therefore  the  smelter  production  must 
be  transported  to  the  refinery.  The  record  (Form  32)  of  bullion  shipped 
to  the  refinery  is  made  up  from  the  daily  reports  of  weights  and  contents 
of  bullion  as  reported  from  the  smelter,  and  the  freight  charges  are  paid, 
as  per  freight  tariffs.  However,  in  order  to  get  the  complete  and  correct 
cost  of  each  month's  production,  the  amount  of  bullion  freight  that. is 
chargeable  against  the  month's  production  is  taken  up  on  the  books,  as 
explained  under  Accrued  Disbursements,  and  as  shown  on  Form  26. 


CALUMET  AND  ARIZONA  SMELTER 

COPPEB    STATMENT    for    mnntr.    nf-             _     _                                                            191 

DESCRIPTION 

BARS 

POUNDS 

(duster) 

AVERAGE  ASSAY 

CONTENTS 

Au. 

As. 

Cu. 

An. 

A?. 

Fine  Copper 

On  band                                191 

Producing  durinc  month 

TOTAL. 

Shipped  durinc  month 

On  band                                I'll 

Form  32. — Smelter  Production  Recovery. 


REFINERY  PRODUCTION 

Very  few  mining  companies  operate  a  refinery  in  connection  with 
their  mines  and  smelters,  and  even  when  this  is  the  case,  the  refining  of 
the  smelter  production  is  done  by  contract  as  to  price  and  date  of  delivery 
of  the  refined  product.  The  amount  chargeable  for  refining  against  each 
month's  production  is  taken  up  on  the  books  in  advance  of  the  actual 
refining,  as  explained  under  Accrued  Disbursements. 

The  Sales  Department  of  the  company  is  advised  as  each  week's 
production  of  metals  is  determined,  and  an  order  is  given  the  Sales 
Agent  (Form  31)  on  the  refinery  showing  the  date  that  same  will  be 
due  from  the  refinery,  etc.,  in  order  that  the  Sales  Department  may  be 
informed  of  the  amount  of  refined  metals  that  will  be  delivered  each 
week  by  the  refinery  that  may  be  sold  for  future  delivery,  or  will  be 
available  for  spot  sales. 

A  copy  of  each  of  these  advices  is  kept  on  file  by  the  Accounting 
Department,  and  at  the  end  of  each  month  there  is  entered  on  the  Pro- 
duction and  Refinery  Delivery  Record  (Form  33),  the  pounds  and 
ounces  of  metals  produced,  and  the  pounds  and  ounces  of  metals  that 
will  be  due  from  the  refinery,  and  the  due  dates  of  delivery. 


102 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


PRODUCTION    &    REFINERY   DELIVERIES 

YEAR- 1917 

MONTH 

PRODUCTION 

TOTAL  LBS. 

SERX  DELIVE' 
FROM  PR 
MONTH 

UES 

JDUCTIOX 
POUNDS 

January 

1  US 

SOS 

February 

1  |  0  J 

8  5  3 

March 

1  51  S 

i  36 

April 

1  iS2 

sss 

5s\2 

7  8' :5 

Jam 

aryl 

i  $  1 

785 

May 

1  1S5 

56  9 

1  iSfi 

129 

__: 

83  t 

51  8 

■  Febi 

nary 

65  5 

611 

June 

95  6 

39  6 

1  356 

502 

P| 

7  ',  7 

H  2 

Mar< 

h 

6  0  9 

260 

July 

2  0,5 

08  1 

1615 

60  5 

If 

COD 

L 

Aprl 

7  06 

:  -  9 

August 

:  ;  i 

C  7  7 

1  3  SC 

06  9 

' 

:  :  j 

all* 

May 

5  7  4 

M6 

September 

Hi 

92  4 

1280 

658 

3 

SI  1 

1,03 

)  1 

June 

i  6  0 

25  5 

October 

SOS 

518 

i  S7 

U  1 

f- 

i  87 

UJ 

July 

November 

7  77 

6  15 

5  17 

66  2 

s 

205 

C  S  1 

Augi 

* 

C8\l 

December 

6  26 

6  12 

Ft  J 

2  68 

3  32 

096 

1918 

Sept 

•mbt-r 

£|5  7 

17\2 

January 

7*4 

5  3  8 

5 

,| 

;:: 

Octo 

>er| 

2  ;  i 

:  5  6 

February 

913 

sh  0 

-| 

5  2  8 

7  S\2 

>ovt 

mber, 

3  -  ; 

6\0\S 

March 

6  1,6 

578 

.. 

3  93 

008 

Decc 

mbei 

fjSjJ 

5|7  2 

April 

S  ',3 

Oh  2 

L 

37  3 

OX  2 

TOTAL8 

11  9  3  5 

it  7 

\1  S  3^5 

3  J  7 

XI  9  35 

S]l  7 

Form  33. 


CHAPTER  X 
SALES 

On  account  of  the  sales  department  making  the  sales  of  and  delivering, 
the  principal  product,  as  well  as  making  collections  therefor,  the  account- 
ing records  for  both  sales  and  receipts  of  principal  product  are  based  on 
reports  from  the  sales  department. 

The  sales  of  production  are  of  three  classes: 

Sales  of  Principal  Product, 

Sales  of  Secondary  Product,  and 

Sales  of  By-products. 

Occasionally  metal  mines  produce  only  one  product,  such  as  gold, 
silver,  lead,  copper  or  quicksilver,  etc.,  the  same  as  iron  and  coal  mines, 
but  as  a  rule  most  metal  mines  have  a  principal  product  such  as,  for 
instance,  copper,  with  gold  and  silver  as  by-products  which  are  extracted 
from  the  blister  copper  when  the  latter  is  refined  and  then  there  may  be  a 
secondary  mine  product  such  as  a  lead-silver  ore  or  ores  valuable  only 
for  their  silica  or  sulphur  content  which  are  sold  to  custom  or  other 
smelters. 

The  method  of  selling  these  different  products  usually  is  not  the  same, 
depending  upon  the  scale  of  operations,  etc. 

SALES  OF  PRINCIPAL  PRODUCT 

When  the  production  is  of  sufficient  quantity  to  justify,  a  sales  depart- 
ment is  maintained  to  sell  the  principal  product  or  the  principal  product 
is  sold  through  independent  sales  organizations.  Sometimes  the  secon- 
ary  products  are  also  sold  through  the  sales  department,  but  as  a  rule 
the  secondary  products  of  mines  and  mills  are  sold  direct  to  custom  smelt- 
ers or  brokers.  The  by-products  may  be  sold  through  the  sales  depart- 
ment, to  smelters  or  to  refiners  or  disposed  of  direct  by  the  operating 
department  depending  upon  the  character  and  quantity  and  which 
method  gives  the  best  results. 

Even  when  the  producers  maintain  their  own  sales  department 
such  is  operated  separately  and  as  a  rule  a  fixed  rate  of  charge  is  made  for 
selling  plus  the  actual  delivery  cost. 

The  sales  department  has  its  own  cash  account  and  keeps  its  own 
separate  records  of  cash  book,  journal,  general  ledger,  customers'  ledger, 
etc.,  but  closes  its  record  of  each  sale  when  completed  by  a  transfer  of  the 
cash  received  therefor  to  the  Treasurer. 

103 


104  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

As  soon  as  the  smelter  production  of  the  principal  product  is  deter- 
mined for  each  week  the  sales  department  is  notified  of  the  amount  and  of 
the  date  delivery  of  refined  metal  will  be  due  from  the  refinery.     This 


/^z&^v^kMlaAe&f^^^ 


& 


Vbu  assume  all  risks  of  delay  due  to  stnl<es,dinV 
anees  with  workmen,  accidents  to  machinery,  delays  of 
carriers  including  those  in  the  transportation  of 
copper  or  supplies  necessary  for  the  treatment  of 
copper  at  the  mines  or  plants, or  to  any  cause  be- 
yond our  control  Each  month's  delivery  shall  be  ACCEPTED 
treated  as  a  separate  contract.  * 

Form  34. — Sales  Contract. 


enables  the  sales  department  to  know  the  quantity  of  metal  produced, 
in  transit,  and  that  will  be  available  for  sales  delivery  for  each  week  and 
month  in  the  future,  as  well  as  knowing  what  amount  of  unsold  refined 
metal  is  on  hand  for  spot  sales. 


SALES  105 

As  sales  are  made  of  the  principal  product  such  as  copper  a  sale  con- 
tract (Form  34)  is  drawn  and  signed  in  triplicate,  one  for  the  Buyer,  one 
for  the  Sales  Department  and  one  copy  for  the  Accounting  Department. 
Upon  receipt  of  the  triplicate  copies  by  the  Accounting  Department  a 
record  is  made  of  each  sale  in  numerical  order  as  to  sale  numbers  (Form 
35),  which  record  is  closed  for  each  month,  and  the  amount  is  taken  up  on 
the  books  by  a  journal  entry,  as  follows: 

Sold  Copper  in  Transit $122,291 . 65 

Monthly  Sales $122,291.65 

To  Future  Sales  Contracts $122,291.65 

"520,390  lb.  of  copper  sold  against  copper  in  transit, 
as  per  Monthly  Sales  Sheet." 

When  the  amount  of  the  copper  sold  each  month  is  taken  up  on  the 
books  it  is  necessary  to  reduce  the  amount  of  the  unsold  copper  a  like 
number  of  pounds,  and  therefor  an  entry  must  be  made  to  reduce  the 
unsold  copper  carried  on  the  books,  as  follows: 

Ores  and  Bullion $67,937.88 

To  Unsold  Copper $67,937.88 

"To  clear  the  books  of  520,390  lb.  of  copper  sold  in 

January,  and  23,113  lb.  of  Over-sales  for  March." 

Occasionally  it  is  considered  best  to  sell  against  future  production 
and  when  this  is  done  the  sales  are  recorded  upon  the  sales  sheets  the 
same  as  regular  sales,  and  a  charge  to  Over-sales  is  made  by  journal 
entry,  as  follows : 

Over-sales $235,000.00 

Monthly  Sales $235,000.00 

To  Future  Sales  Contracts $235,000.00 

Sold    against    future    production    June    500,000   lb. 
at  23.5  cts. 

Sold  against  future  production  July  500,000  lb.  at 
23.5  cts. 

As  shown  by  January  Sales  Sheets. 

However,  when  a  statement  is  taken  from  the  ledger  the  amount 
of  the  Over-sales  on  the  books  are  deducted  from  the  amount  of  the 
Future  Sales  Contracts  in  order  that  the  statement  of  the  business  will 
show  the  true  condition  in  assets  and  liabilities. 

As  the  production  from  mine  and  smelter  gives  refinery  deliveries  for 
the  months  against  which  over-sales  have  been  made  entries  transferring 
the  sales  from  the  Over-sales  Account  are  made,  as  follows: 

Sold  Copper  in  Transit $6,059.60 

Monthlv  Sales $6,059.60 

To  Over-sales $6,059.60 

"23,113  lb.  of  March  Over-Sales  closed  out  by 
production  deliveries." 


106 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


1   — : 

- 

2 

-t- 

IBi 

.  _ 

j        u       -       - 

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Ht,! 

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-pj 

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O             =i 

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Q         1*         1 

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tf         I  - 

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.£..] 

^ 

Copper  Sales  Sheet  (Form  35)  provides  for 
a  record  of  the  settlement  of  each  sale  in  order 
that  there  may  be  an  accurate  check  of  the 
price,  pounds,  and  date  of  delivery  of  each 
sale.  However,  it  is  not  necessary  to  have 
this  information  on  the  Sales  Sheet. 

SALES  OF  SECONDARY  PRODUCTION 

Numerous  small  producers  sell  their  mine 
and  mill  products  direct  to  custom  smelters, 
and,  also,  as  a  rule,  large  producers  of  any 
particular  mine  product  sell  their  secondary 
mine  and  mill  production  to  custom  smelters 
under  contract.  When  this  is  done  the  Sales 
Record  is  combined  with  the  production 
record  as  shown  by  Form  29,  which  gives  a 
very  concise  and  complete  record  of  produc- 
tion and  sales. 

When  the  mine  and  mill  product  is  dis- 
posed of  in  such  manner  the  production  and 
sales  records  may  be  handled  by  one  of  two 
methods.  The  first  method  is  simply  to  carry 
the  ore  and  concentrates  for  which  settlements 
have  not  been  received  as  ''  On  Hand  at  Cost," 
and  figure  the  monthly  production  and  costs 
from  the  Smelter  Settlements,  as  shown  by 
Form  29. 

The  second  method  is  to  charge  an  Ore 
Production  Account  with  the  total  expense  of 
producing  the  ores,  and  charge  an  Ore  Milling 
Account  with  the  amount  of  expense  of  milling 
ore.  Then  to  charge  a  Metal  Production  Ac- 
count with  the  proportion  of  Ore  Production 
Expense  and  Milling  Expense  that  is  appli- 
cable to  the  concentrates  for  which  settle- 
ments have  been  received  from  the  smelter,  as 
shown  by  Settlement  Sheet  Form  29. 

The  second  method  gives  an  accurate  cost, 
while  the  first  method  gives  an  arbitrary  cost, 
which  after  the  first  several  months  of  produc- 
tion, will  be  fairly  accurate,  provided  the 
monthly  expense  and  production  is  uniform 
from  month  to  month.  The  first  method  is 
more  often  found  in  use  by  small  producers  who 
do  not  realize  the  need  of  accurate  records. 


SALES  10? 

SALES  OF  BY-PRODUCTS 

The  disposal  of  by-products  in  the  principal  production,  such  as  gold 
and  silver,  if  copper  is  the  principal  product  produced,  is  sometimes  made 
by  the  sales  department  to  the  mint  or  to  consumers,  but  generally  such 
by-products  are  purchased  by  the  refiners  who  make  settlements  therefor 
upon  assay  contents  of  the  bullion  before  refining. 

Either  the  sales  value  of  by-products,  or  an  inventory  price  is  used  in 
taking  them  upon  the  books  and  this  entry  is  usually  made  at  the  time  of 
production,  as  was  illustrated  under  Production  Accounting.  To  use  a 
nominal  price  in  the  inventory  from  month  to  month  enables  the  ac- 
counting and  bookkeeping  to  be  done  without  delay. 

When  the  mine  or  mill  production  is  sold  to  custom  smelters,  the  by- 
products are  purchased  along  with  the  principal  content  in  the  ore  or 
concentrates,  as  shown  by  Form  29. 

SALES  OF  OPERATING  SUPPLIES,  ETC. 

Occasionally  sales  of  operating  supplies  are  made  from  warehouse 
stocks,  as  well  as  sales  of  obsolete  equipment  and  of  power,  air,  water, 
shop  labor,  or  operating  service  such  as  assaying,  engineering,  etc.  to 
accommodate  others. 

Such  sales  are  made  upon  authority  of  the  manager  or  the  authority 
of  the  department  head  responsible,  and  are  carried  in  the  Accounts 
Receivable  Account. 

All  such  sales  of  supplies  and  of  unused  equipment  show  as  a  credit  to 
the  Supply  Accounts  or  proper  Equipment  Account,  etc.,  and  do  not 
show  upon  the  Monthly  Operating  Statement. 

All  sales  of  discarded  equipment  that  had  been  charged  to  Operation 
and  replaced  with  new  equipment  are  credited  to  Refunds  and  Discounts 
"Old  Materials  Sold,"  while  all  sales  of  power,  air,  shop  labor  and  services 
are  credited  to  the  proper  Operating  Department  and  the  credit  is  shown 
on  the  Monthly  Operating  Statement. 

All  sales  of  operating  supplies,  etc.  are  carried  in  the  Accounts  Receiv- 
able Account,  while  the  sales  of  production  are  carried  in  regular  Sales 
Accounts,  as  shown  by  Chart  8,  and  are  transferred  to  Receipt  Accounts 
as  the  sales  are  delivered  to  transportation  agents  for  delivery  to  customers. 

UNDELIVERED  SOLD  PRODUCTION 

Occasionally,  due  to  railroad  strikes,  war,  or  other  causes  interferring 
with  delivery  of  sold  production,  it  is  impossible  to  make  delivery  of  sales 
to  customers,  and  when  these  undelivered  sales  are  of  large  volume  it  is 
best  to  close  them  out  of  the  "Sold  Metal  in  Transit"  and  carry  them  as 


108  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

"Undelivered  Sold  Metal"  in  order  that  the  Statement  may  show  the 
amount  of  sold  products  that  cannot  be  delivered. 

Before  closing  the  books  at  the  end  of  the  year  it  should  be  decided 
whether  or  not  the  sales  of  metal  in  transit  and  undelivered  sales  are  to 
be  inventoried  at  cost  or  carried  at  the  sales  price. 

In  making  returns  for  purpose  of  Income  Tax,  the  Undelivered  Sales 
will  have  to  be  inventoried  at  cost,  unless  it  can  be  shown  that  the  pro- 
duct was  on  hand  ready  for  delivery,  and  it  was  the  desire  of  the  purchaser, 
that  the  delivery  should  be  made  at  a  later  date,  or  that  inability  to  de- 
liver was  due  to  the  transporting  agent. 


CHAPTER    XI 
BECEIPTS 

When  the  accounts  are  kept  upon  an  accrued  basis  it  is  necessary  to 
take  up  on  the  books  the  receipts  as  they  are  created  regardless  of  whether 
or  not  payments  of  cash  have  been  received  therefor. 

It  is  difficult  for  some  persons  to  understand  how  there  can  be  a 
receipt  unless  there  has  been  an  actual  payment  in  cash  or  collateral, 
although  they  can  understand  why  an  accrued  disbursement  should  be 
taken  up  on  the  books  before  there  has  been  an  actual  disbursement  of 
cash,  and  therefore  some  firms  will  keep  their  records  of  disbursements  on 
an  accrued  basis  but  will  keep  their  records  of  receipts  upon  a  cash  basis. 
However,  when  this  is  done  the  accrued  revenue  is  not  shown  on  the  books, 
and  a  statement  of  the  business  does  not  show  the  actual  condition  of  the 
business. 

Therefore,  whenever  there  has  been  a  delivery  of  any  part  of  the  pro- 
duction to  others,  or  there  has  been  created  a  revenue  liability  a  record  of 
it  should  be  made  upon  the  books  regardless  of  whether  or  not  the  trans- 
action was  for  cash  upon  delivery  or  upon  time  payment. 

In  a  commercial  business  the  receipts  created  by  deliveries  to  cus- 
tomers are  carried  in  an  Accounts  Receivable  Account  until  paid,  and  in 
the  mining  business  such  an  account  is  carried  in  the  General  Sales 
Ledger  of  the  Sales  Department. 

However,  upon  the  General  Books  in  the  Accounting  Department  the 
Accounts  Receivable  Account  is  used  to  show  the  sales  of  operating 
supplies,  operating  labor,  etc.,  while  the  receipts  created  by  the  delivery 
of  sold  production  to  customers  are  carried  in  special  accounts,  as  shown 
by  Chart  VIII.  This  is  done  to  show  the  amounts  due  for  sales  of  produc- 
tion separate  from  sales  of  operating  supplies,  labor,  etc. 

As  the  sales  of  metal  production  are  made  for  future  delivery  as  well 
as  for  spot,  it  is  highly  desirable  that  that  portion  of  sales  which  have  been 
delivered  to  transporting  agents  and  to  customers  be  shown  separately 
as  being  in  the  receipt  stage  in  contradistinction  to  sales  that  have  not 
been  delivered  and  may  be  cancelled  before  delivery  or  fail  to  be  delivered 
on  account  of  some  future  contingencies.  This  information  is  necessary 
in  order  that  a  statement  of  the  business  may  show  what  amount  is  out- 
standing on  delivered  production. 

Also,  as  the  books  are  kept  upon  an  accrued  basis  it  is  necessary  to 
take  the  receipts  upon  the  records  as  they  are  created  and  not  as  cash 

109 


110 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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payments  are  received  as  is  done  when 
the  books  are  kept  upon  a  cash  basis.  Of 
course,  even  when  the  books  are  kept  on 
an  accrued  basis  it  is  customary  to  handle 
the  small  cash  transactions  upon  a  cash 
basis  in  order  to  avoid  unnecessary  book- 
keeping. 

DELIVERY  OF  SALES  OF  PRINCIPAL 
PRODUCT 

A  record  is  made  by  the  Sales  Depart- 
ment of  each  sale  to  customers  at  the  time 
the  sales  contract  is  drawn. 

This  record  of  Sales  Contracted  is  for 
the  guidance  of  the  Sales  Department. 
However,  a  sale  is  not  charged  upon  the 
Sales  books  against  a  customer  until  ship- 
ment is  made,  and  a  contracted  sale  is  not 
usually  taken  up  on  the  General  Books 
as  a  receipt  until  the  Sales  Department 
makes  the  delivery. 

Therefore,  either  during  the  month,  or 
at  the  end  of  the  month,  a  record  is  made 
up  on  the  General  Books  of  receipts  created 
by  the  delivery  during  the  month  of  sold 
products  by  the  Sales  or  other  depart- 
ments, regardless  of  whether  or  not  pay- 
ments have  or  have  not  been  received 
for  such  deliveries. 

The  record  of  copper  deliveries  each 
month  is  shown  by  the  Copper  Sales 
Deliveries  Sheet  (Form  36)  using  one 
Delivery  Sheet  for  each  month  and  the 
total  amount  of  this  Sheet  is  taken  up 
on  the  General  Books  at  the  end  of  the 
month  by  a  journal  entry,  as  follows: 

Due  for      Copper 

Shipped $204,701.26 

Monthly  Sales 

Deliveries .  .  $204 ,  701 .  26 
To  Copper  Sales 


Deliveries . 


204,701.26 


"Amount  of  copper  delivered  to  customers 
in  January  against  contracted  accounts  as  per 
Delivery  Sheet." 


RECEIPTS  HI 

As  deliveries  are  made  a  reduction  of  like  amount  must  be  made  in 
the  Sales  Accounts  in  order  that  the  records  of  sales  may  be  correct 
and  that  the  amount  of  the  Company's  assets  will  not  be  over-stated. 
Therefore  an  entry  is  made  to  accomplish  this,  as  follows: 

Future  Sales  Contracts $204 ,  701  26 

To  Sold  Copper  in  Transit 204  701  26 

Monthly  Sales $204,701 . 26 

"Reducing  the  sales  an  amount  equal  to  the  deliveries 

made  during  the  month,  as  shown  by  Delivery  Sheet." 

RESERVE  FOR  LOSS  ON  SALES 

The  Sales  Department  is  supposed  not  to  make  any  sales  to  customers 
whose  credit  is  doubtful,  and  it  is  expected  that  they  will  watch  their 
accounts  and  collections  and  protect  their  shipments  by  insurance  so 
as  to  avoid  any  loss. 

However,  some  catastrophe  may  result  in  a  full  or  partial  loss  of  an 
account  or  make  it  doubtful  that  the  full  amount  of  a  receipt  will  be 
collected.  In  such  cases  the  receipt  in  question  should  be  carried  at  its 
sales  value  but  a  reserve  should  be  set  up  on  the  books  of  an  amount 
considered  sufficient  to  offset  any  probable  loss. 

This  is  done  by  debiting  an  account  "Estimated  Loss  on  Deliveries" 
and  crediting  "Reserve  for  Loss  on  Deliveries,"  and  in  making  up  the 
Operating  Statement  the  amount  of  the  "Estimated  Loss  on  Deliveries" 
will  not  show  on  the  statement  except  as  deducted  from  the  amount  of 
the  "Copper  Sales  Deliveries,"  if  it  is  a  sale  of  copper,  the  net  amount 
being  extended  to  the  balance  column.  The  account  reserve  for  loss  on 
deliveries  is  charged  with  the  actual  loss  when  determined.  If  the  loss 
does  not  occur  as  anticipated  the  amount  of  the  reserve  set  up  therefore 
is  cleared  from  the  books  by  reversing  the  entry. 

OVERS  AND  SHORTS  ON  DELD7ERIES 

It  is  not  always  possible  to  deliver  the  exact  amount  of  pounds  of 
metal  as  called  for  under  the  sales  contract  on  account  of  the  different 
shapes  as  ingots,  cakes,  bars,  or  cathodes  being  of  certain  weight.  There- 
fore, as  a  rule  there  is  generally  a  few  pounds  more  or  less  delivered  for 
which  adjustment  is  made  with  the  customer  upon  settlement  of  each  sale. 
At  the  end  of  each  month  the  amount  of  the  overs  and  shorts  are  totaled 
and  adjusting  entries  are  made  upon  the  books  to  the  proper  accounts. 

In  case  of  over-shipment  the  first  adjustment  is  to  the  Receipt  Account, 
as  follows: 
Due  for  Copper  Shipped $418 .  42 

Overs  and  Shorts $418. 42  . 

To  Copper  Sales  Deliveries 418. 42 

"The  amount  that  overs  exceed  shorts  on  deliveries  made 
against  October  Account,  as  shown  by  Delivery  Sheet  amounting 
to  1,465  lb." 


112  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

The  second  adjustment  is  to  the  Unsold  Copper  Account: 

Ores  and  Bullion $183 .  12 

To  Unsold  Copper 183. 12 

Unsold  Copper  in  Transit $183. 12 

"Reducing  the  amount  of  unsold  copper  at  inventory  price 
to  offset  1,465  lb.  of  copper  delivered  over  against  October 

deliveries." 

In  case  the  deliveries  are  short  for  any  month  the  entries  would  be 
the  reverse  of  those  shown  above  for  over-deliveries. 

DELIVERY  OF  SALES  OF  BY-PRODUCTS 

In  the  case  of  copper  mines  the  by-products  are  usually  gold  and 
silver,  and  the  sale  of  these  is  generally  made  to  the  refinery  unless  the 
company  owns  its  own  refinery,  when,  of  course,  they  would  be  sold  either 
to  the  United  States  Mint  or  in  the  open  market. 

When  the  by-products  are  sold  in  the  open  market  or  to  the  Mint 
they  are  taken  up  on  the  books  when  the  production  entries  are  made 
and  carried  on  the  books  at  inventory  prices  below  the  usual  market, 
and  as  sales  are  made  the  amount  of  the  sales  are  entered  upon  the 
books  and  the  production  accounts  are  reduced  an  amount  of  ounces  at 
inventory  price  equal  to  the  amount  of  ounces  sold,  the  same  as  done 
with  copper  sales. 

When  the  by-products  are  sold  to  refiners  or  direct  to  custom  smelters 
the  contract  states  the  amount  that  shall  be  paid  for  same,  and  the 
by-products  may  be  taken  up  on  the  books  at  contract  price  as  produced, 
as  shown  by  entry  under  Production  Accounting,  and  not  passed  through 
the  Sales  or  Receipt  Accounts.  This  can  be  done  even  when  the  by- 
products are  taken  up  in  the  Production  Accounts  at  estimated  figures, 
the  amount  of  actual  settlement  being  treated  as  Cash  Receipt  and  the 
amount  standing  in  the  Production  Accounts  at  inventory  price  being 
closed  out.  This  method  saves  bookkeeping  and  is  allowable  when  the 
by-products  are  not  large. 

DELD7ERY  OF  SECONDARY  PRODUCTS 

The  sales  of  secondary  products  are  handled  in  the  same  manner 
as  metal  sales  if  sold  direct  to  consumers.  If  sold  to  custom  smelters 
they  are  carried  on  the  books  at  cost  until  settlements  are  received  when 
the  proper  amounts  are  taken  up  on  the  books  the  same  as  a  Cash  Receipt 
and  the  amount  of  the  cost  of  inventory  value  is  written  off. 

If  the  Secondary  Production  is  large  and  is  not  quickly  turned  into 
cash,  it  would  be  best  to  carry  it  through  the  Sale  and  Receipt  Accounts 
the  same  as  the  principal  production. 


RECEIPTS  113 

MISCELLANEOUS  RECEIPTS 

Miscellaneous  receipts  such  as  cash  discounts,  freight  and  purchase 
refunds,  etc.  are  as  a  rule  treated  as  cash  receipts  and  are  not  carried  in  the 
Sale  or  Receipt  Accounts  but  are  entered  as  the  cash  is  received  therefor 
and  will  be  illustrated  under  "Cash." 

In  practice  to  save  bookkeeping  it  is  not  customary  to  take  up  the 
delivery  of  Secondary  Production  and  Miscellaneous  Receipts  into  the 
Receipt  Accounts,  although  this  would  be  theoretically  correct  and  can 
be  done  if  desired. 


114 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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CHAPTER  XII 
OPERATING  CASH 

Generally  there  is  only  one  account  for  Cash  in  the  General  Operating 
Ledger,  with  sometimes  a  Petty  Cash  Account.  Usually  the  cash  is 
deposited  in  one  bank  so  that  the  Cash  and  Bank  Account  are  the  same. 
As  a  rule  there  is  only  one  record  for  operating  cash  transactions,  a  Cash 
Book,  or  sometimes  known  as  a  Cash  Journal,  which  book  should  always 
be  a  bound  record.  The  amount  of  cash  available  for  use  of  operation  is 
shown  by  the  Cash  Book. 

There  is  only  one  Operating  and  one  Administrative  Cash  Record, 
except  when  there  is  a  holding  company  with  subsidiary  companies, 
and  the  entries  are  so  made  that  postings  can  be  entered  to  the  Ledger 
direct  from  the  Cash  Book.  The  entries  made  upon  the  credit  or  dis- 
bursement side  of  the  Cash  Record  are  to  record  the  distributions  of 
cash  and  postings  are  made  from  these  credit  entries  to  the  debit  side 
of  Disbursement  Accounts  to  satisfy  the  disbursement  liabilities 
that  have  been  created.  The  entries  made  upon  the  debit  or  receipt 
side  of  the  Cash  Record  are  to  record  the  receipts  of  cash,  and  postings 
are  made  from  these  debit  entries  to  the  credit  side  of  Accrued  Receipt 
Accounts  to  close  out  revenue  liabilities  that  have  been  created,  or  the 
postings  from  these  debit  entries  are  made  direct  to  Receipt  Accounts,  if 
the  receipts  are  kept  upon  a  cash  basis. 

If  there  were  kept  only  one  record  for  all  cash  transactions,  whether 
for  operation  or  administration,  the  Cash  Receipts  would  appear  in  the 
Cash  Book,  or  Cash  Journal,  as  coming  from  the  sources  as  shown  in 
Chart  X,  and  the  Cash  Disbursements  would  be  made  to  close  Disburse- 
ment Accounts,  as  shown  by  Chart  X. 

However,  as  the  record  of  Operating  Cash  is  kept  separate  from 
the  Treasurer's  record  of  cash,  and  as  we  are  dealing  with  Operating 
Accounting,  we  will  confine  our  present  illustrations  to  cash  used  in 
production  operations,  and  as  recorded  in  the  Operating  Cash  Book 
(Form  37). 

The  form  of  the  Operating  Cash  Record  will  vary  to  suit  the  needs  of 
each  business,  but  should  be  a  bound  record  of  double  pages,  the  left- 
hand  page  for  Receipts  and  the  right-hand  page  for  Disbursements  of 

Cash. 

CASH  RECEIPTS 

The  cash  receipts  involved  in  production  operating  accounting 
depends  upon  the  character  of  the  mine,  the  manner  in  which  the  product 

115 


116 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Month        of      January      1918 

— — — — = = = = ^ sss^ ^ ^ — 

Sales 

Accounts 
Receivable 

Sundries 

Jan 

IJ 

Due  for   Gold    &    Silver 

_c 

■l\sGS 

Y 

Refunds  -  Miscellaneous 

|| 

20  00 

(One    month's  Rental   on  Air  Drill] 

Y 

Bill  *  3i0  -  Wm  Hughes 

4  80 

Y 

Bill  +389   Lamps 

1  i9o\ 

Y 

Bills  +305  -  10  -14  -16  -  19-S2 

__L 

Jl 

Y 

326    Denn    Ariz     Copper    Co. 

K5  20 

Y 

BiUs^304-27-36  E.P.  &  S.W.  Systert 

11161 

Y 

Refunds    -  Freight 

23 

Y 

Refunds    .  Freight 

46 

Y 

Bill*l-E.P.  &   S.W.  System 

T 

1  Si 

Y 

Refunds  -  Wood    Sold 

2io\ 

Y 

Bill*  389   Lamps 

3865 

Y 

Lead    Lat.^6174 

{ 

:  2  Ti 

Y 

Refunds  -  Old    Material    Sales 

, 

£004 

Y 

Refunds  -  Miscellaneous 

i]000 

(Rental    on   Air    Drill) 

Lead   Lat.+5S12 

2 

ill  It 

Y 

Bills* t-  5.11   E.P.&  S.W.  System 

1 

J7_6i 

Y 

Refunds    Freight 

177 

Y 

Bill  +353    A  .L  .Engels 

191 

Y 

Bill  *9  -  M.Doak 

S  60 

Y 

Bill* 46    E.P.  &  S.W.  System 

600 

Y 

Bill* 335  T.O.  McGrath 

" 

l  U  ^ 

Y 

Bill* 308    H.W.  Lumber    Co.. 

Use 

Y 

Bill  •  339    P.  D  ■  Mere    Co . , 

12  COO 

Y 

Refunds  -  Cash    Discounts 

03  94 

Totals 

_£ 

100  85 

It. 

;  90  4  7 

■ 

:  -  H 

1 

Cash 

tilt 

1  1 

1V.916 

To 

183 

Due    for   Gold    &    Silver 

L 

va  67 

233 

Special    Ore    Sales 

if' 

1-  < 

19,0  16 

98 

Accounts    Receivable 

T" 

H 

'9047 

m 

Refunds   &   Discounts 

1  s  s  i 

Balance       l/l/l8 

2221 

7  4  43 

\ 

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V 

N. 

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1 
2  33: 

0  3  10 

1 

|| 

LJ 

III 

II 

Fobm  37. — Operating  Cash  Book  Receipts. 


OPERATING  CASH 


117 


Month       of       January        1918 

^^ 

ACCOUNTS  PAYABLE 

December 

December 

January 

January 

LABOR 

BILLS  AUDITED 

LABOR 

BILLS  AUDITED 

Jan 

»1 

Checks  *  77891  -  79229 

325 

_L_ 

rr7 

26S& 

A2378  -   Asm 

W* 

33  99 

hi 

H71 

V 

Labor  -  December 

U5 

»» 

V 

,,           January 

Ul 

'2CSS 

V 

Bills     A  lid  -December 

56: 

33  99 

V 

<•    -  January 

m 

5  371 

102 

Accounts    Payable 

1378 

e:  12 

To 

• 

1 

Cash 

1  37i 

■:  a :  - ' 

Balance    l/siflB 

9'5i 

13327 

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Form  37.— Operating  Cash  Book  Disbursements. 


118  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

is  sold,  and  the  point  of  division  between  operating  and  administrative 
accounting.  Theoretically,  the  cash  received  from  sale  of  production 
should  appear  upon  the  operating  books.  However,  due  to  the  fact 
that  the  operating  books  are  kept  at  the  mine,  which  is  usually  situated 
at  an  isolated  and  distant  point  from  the  office  of  the  Sales  Agent  and 
the  Treasurer,  the  receipts  from  the  sale  of  the  principal  product  are 
generally  remitted  direct  to  the  Treasurer  and  are  recorded  upon  the 
Treasurer's  books.  Therefore,  the  operating  cash  receipts  are  usually 
limited  to  the  following: 

Receipts  from  Treasurer, 

Receipts  from  Sales  of  Secondary  Production, 

Receipts  from  Sales  of  By-products, 

Receipts  from  Sales  of  Operating  Supplies,  Etc. 

In  some  cases  even  the  cash  receipts  for  sales  of  secondary  production 
and  of  by-products  are  recorded  upon  the  administrative  books. 

The  accounting  of  cash  receipts  from  sale  of  stock  and  from  issue  of 
notes  is  done  by  the  Administrative  Accounting  Department  and  the 
record  of  such  transactions  never  appears  on  the  operating  books. 

RECEIPTS  FROM  TREASURER 

Remittances  of  cash  either  in  the  form  of  check,  draft,  or  money,  are 
made  to  the  Operating  Department  each  month  by  the  Treasurer  and 
are  of  sufficient  amount  to  take  care  of  operating  disbursements,  or  the 
amount  of  operating  disbursements  less  the  operating  receipts  of  cash 
from  sundry  sources  made  direct  to  the  Operating  Department. 

The  amount  of  these  remittances  are  entered  to  the  debit  of  Cash  in 
the  Cash  Book  (Form  37)  and  the  Treasurer's  Account  is  credited  a  like 
amount  from  the  Cash  Book  entry. 

CASH  RECEIVED  FROM  SALE  OF  PRINCIPAL  PRODUCTS 

When  the  cash  remittances  for  sales  of  principal  product  are  made  to 
the  Operating  Department,  the  amount  of  such  remittances  would,  of 
course,  appear  upon  the  Operating  Cash  Book.  However,  such  remit- 
tances are  generally  made  direct  to  the  Treasurer. 

As  settlements  are  made  by  the  Sales  Department  with  Customers, 
Reports  of  Settlements  (Form  38)  are  made  in  duplicate,  the  original  is 
sent  to  the  Treasurer  together  with  cheque  for  the  net  amount  of  the  sale, 
if  final,  or  the  total  amount  of  settlement,  if  a  partial  settlement,  and  the 
duplicate  is  delivered  to  the  Accounting  Department  from  which  a  Sale 
Settlement  Check  (Form  39)  is  made,  and  the  details  of  each  sale  settle- 
ment are  entered  on  Sale  Settlement  Sheets  (Form  40)  and  postings 
therefrom  are  made  to  the  Sales  Deliveries  and  Receipts  Sheets  in  order 


OPERATING  CASH  119 

that  there  maybe  known  the  amount  of  settlements  made  for  each  month's 
deliveries  and  what  amount  of  delivered  copper  is  outstanding.  At  the 
end  of  the  month  the  total  amount  of  remittances,  both  partial  payments 

COPY 

January  13,  1917. 
Shattuck  Arizona  Copper  Company 

In  Account  with  Adolph  Lewisohn  &  Sons 

Sales  #721  November,  1916  July  21,  1916 

By  115,311  Lbs.  @  23 i  per  Lb $26,521.53 

CHARGES 

To 

Freight  115,311  Lbs.  @  24.8fi  per  100  Lbs $     285 .  97 

K  Per  cent  Discount  $25,681.11 128.40 

Commission 115.31 

Paid  December    2,  1916 16,800.00 

Paid  December  16,  1916 8,200.00     $25,529.68 

Balance  Due  Yol $      991 .  85 

E.  &  O.  E. 

Form  38. 

COPPER   SALE  SETTLEMENT  CHECK 

SHATTUCK  ARIZONA  COPPER  CO. 

Terms _ 

Delivery  Month Place  . ...  - 

Settlement  Date _. _ — Exchange  Rate 

Sale  No ._._.. ......   ...Lbs.® percent.* 

Over  Short 

Dely — Lbs.  * 

Excli. 

. $ 

SETTLEMENT  TOTAL  0 f 

Deductions:  . 

Insurance  * ■  — » 

Freight  I * — 

Discounts  4  % - * — — — 

Cathode  Als.  *•-- — •-  * 

NET  AMOUNT  NEW  YORK  *  — 

Commissions  ♦• * ~ 

Telegrams,  etc.  $ —    * 

NET  CASH  SETTLEMENT  *.     •• — - 

Form  39. 

and  settlements  in  full  to  Treasurer  by  the  Sales  Agent  is  determined,  and 
the  Treasurer  is  charged  and  Sales  Agent  credited,  as  follows: 

Treasurer,  Current  Year $106,719.47 

To  Sales  Agent $106,719.47 

"Amount  of  remittances  to  Treasurer  during  January 

as  shown  by  Statements  of  Settlements  with  Sales  Agent." 


120 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


M 


ffl 


OPERATING  CASH  12l 

The  account  with  the  Sales  Agent  never  shows  a  balance  except  when 
there  has  been  remittances  of  partial  payments,  and  in  such  cases  the 
balance  in  the  Sales  Agent  Account  is  deducted  from  the  balance  in  the 
account  Due  for  Metal  Shipped. 

At  the  end  of  each  month  the  Record  of  Sales  Settlement  is  closed  and 
journal  entry  is  made  from  the  summary  thereof,  as  follows: 

Sales  Agents. $106,255.98 

Commissions  and  Telegrams $         572. 42 

Freight 473. 81 

Excess  Freight 693  84 

Discounts 3%  44 

Net    Settlements 104, 119. 47 

To  Due  for  Metal  Shipped $106  ( 255  98 

"Amount  of  final  settlements  of  Copper 
Shipped,   as  shown  by  Record  of  Sales 
Settlements." 

As  the  Sales  Agent  remits  the  net  amount  of  each  sale  after  deductions 
of  commission,  freight,  etc.  subsidiary  accounts  to  the  Sales  Agent 
Account  are  kept  to  show  these  deductions. 

Also,  as  the  Sales  Agent's  account  is  credited  with  the  amount  of 
net    remittances    only  at    the  time  the  Treasurer  is  charged  with  net 
cash  remittances  received,  it  is  necessary  to  charge  out  the  selling  expense 
paid  by  the  Sales  Agent  and  credit  the  Sales  Agent  a  like  amount,  as 
follows : 

Selling  Expense  Not  Due $2, 136. 51 

To  Sales  Agent $2, 136.51 

Commissions  and  Telegrams $572 .  42 

Freight 473.81 

Excess  Freight 693 .  84 

Discounts,  Etc 396 .  44 

"Selling  expense  paid  by  Sales  Agent,  as  shown 
by  Record  of  Sales  Settlements  for  January." 

CASH  RECEIVED  FROM  SALES  OF  OTHER  PRODUCTS 

It  is  customary  for  the  receipts  from  sales  of  secondary  products  and 
by-products  to  be  remitted  direct  to  the  Operating  Department  for  the 
reason  that  the  sales  of  these  products  are  usually  made  direct  to  the 
smelters  or  refineries  and  the  accounting  of  them  can  be  handled  better 
by  the  Operating  Department  than  by  the  Administrative  Department. 
However,  in  some  cases  the  remittance  for  the  sale  of  these  products  is 
made  direct  to  the  Treasurer  the  same  as  in  the  case  of  the  remittances 
for  sale  of  the  principal  product.  In  the  latter  case  the  Operating 
Accounting  for  these  products  is  handled  in  the  same  manner  as  done  for 
the  principal  product. 


122 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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OPERATING  CASH 


123 


CASH  RECEIVED  FROM  SALE  OF  BY-PRODUCTS 
As  cash  is  received  from  the  sale  of  by-products  it  is  checked  against 
the  Record  of  Gold  and  Silver  Deliveries  (Form  41)  and  the  amount  of 
cash  received  for  the  sale  of  each  lot  of  by-products  is  entered  upon  the 
debit  side  of  the  Cash  Book,  as  shown  in  Form  37,  each  entry  in  the  Cash 
Book  corresponding  with  like  entry  on  Form  41. 

At  the  same  time  a  correcting  journal  entry  is  made  to  adjust  the 
inventory  price  to  the  actual  price  received,  as  shown  on  Form  41. 

No  postings  are  made  from  the  individual  entries  in  the  Cash  Book 
except  as  shown  on  Form  37. 

CASH  RECEIVED  FROM  SALE  OF  SECONDARY  PRODUCTS 

As  cash  is  received  from  sale  of  secondary  products,  it  is  usually  accom- 
panied by  a  Settlement  Sheet  for  each  lot  of  ore,  as  shown  by  Form  28,  and 
the  net  amount  of  sale  of  each  lot  of  ore  is  entered  in  the  Cash  Book,  as 
shown  on  Form  37,  each  cash  book  entry  corresponding  to  an  entry  of  a 
like  amount  on  Summary  Sheet  29. 

No  postings  are  made  from  the  individual  entries  in  the  cash  book 
except  as  shown  on  Form  37. 

CASH  RECEIVED  FROM  ACCOUNTS  RECEIVABLE,  ETC. 

As  cash  in  payment  of  accounts  receivable  and  sundries  is  received, 
entries  are  made  upon  the  debit  side  ofthe  Cash  Book  for  each  item  show- 
ing bill  number  and  necessary  explanation  to  insure  identification.  The 
amount  of  each  item  is  posted  direct  to  the  proper  subsidiary  ledger  ac- 
count, the  folio  of  the  ledger  page  being  placed  in  the  folio  column. 

POSTINGS  OF  CASH  BOOK  DEBITS 

At  the  end  of  the  month  the  Cash  Book  is  ruled  and  a  summary  made 
of  the  debit  postings  necessary  to  be  made  to  General  Ledger,  as  shown  by 
Form  37,  as  follows: 


Account 

Amount 

Folio 

Debit 

Credit 

16 

$11,619.16 

183 

To  Due  for  Gold  and  Silve  

$6,719.69 

233 

3,090.16 

98 

1,090.47 

241 

718.84 

The  posting  to  the  credit  of  "Due  for  Gold  and  Silver"  will  close  out 
that  amount  of  the  debit  against  accrued  receipts  that  has  been  liquidated. 


124  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

The  posting  to  the  credit  of  "Special  Ore  Sales"  will  be  made  only 
when  such  sales  are  treated  as  a  cash  receipt,  at  which  time  a  journal 
entry  must  be  made  to  close  out  the  account  "Special  Ores  at  Inventory." 

If  the  special  ores  have  been  carried  from  Production  into  the  Accrued 
Receipts  by  a  charge  to  "Due  for  Special  Ore  Shipments"  and  a  credit  to 
"Special  Ore  Sales,"  then  the  cash  book  entry  would  be  a  credit  to  "Due 
for  Special  Ore  Shipments"  instead  of  as  shown  above. 

The  credit  posting  to  the  Accounts  Receivable  Account  in  the  General 
Ledger  will  reduce  the  account  and  amount  equal  to  the  individual  post- 
ings to  the  subsidiary  ledger  accounts. 

The  credit  posting  to  Refunds  and  Discounts  in  the  General  Ledger 
is  usually  considered  as  cash  receipts  and  the  amount  of  this  credit  is 
equal  to  the  total  of  the  individual  postings  to  subsidiary  ledger  accounts 
of  Refunds  and  Discounts. 

The  debit  posting  to  Cash  in  the  General  Ledger  charges  the  Cash 
Account  with  the  amount  of  cash  received  during  the  month. 

CASH  DISBURSEMENTS 

Operating  Cash  Disbursements  are  made  to  satisfy  the  accounts 
payable  liabilities  created  by  the  employment  of  labor  as  shown  by  the 
pay-rolls  and  the  Labor  Account  in  the  General  Ledger,  and  to  pay  for 
expense  contracted  either  current  or  accrued,  and  materials  purchased 
as  shown  by  the  audited  vouchers  entered  upon  the  Bills  Audited  Record, 
and  by  the  Bills  Audited  Account  in  the  General  Ledger.  All  such 
liabilities  are  known  as  Accounts  Payable,  and  disbursements  therefore 
are  made  by  cheque,  except  petty  disbursements  handled  through  the 
petty  cash  account  which  are  made  in  cash. 

CASH  DISBURSEMENTS  FOR  LABOR 

Cash  disbursements  for  labor  are  made  by  cheque  for  weekly,  fort- 
nightly or  monthly  wages  or  salaries  of  regular  employees,  or  for  wages  or 
salaries  of  discharged  employees  upon  presentation  of  properly  signed 
time  statements.  All  pay-roll  cheques  are  drawn  by  the  paymaster  or 
cashier  against  time  statements  bearing  pay-roll  numbers,  which  time 
statements  are  then  given  to  the  persons  having  immediate  supervision  of 
work  of  employees  and  by  them  distributed  to  the  employees  for  exami- 
nation, signature  and  delivery  to  paymaster  or  cashier  in  lieu  of  receiving 
pay  cheques  for  like  amount. 

Discharged  employees  present  identification  slips,  to  paymaster  and 
sign  time  statement  at  time  of  delivery  of  pay  cheque. 

Cheques  issued  for  labor  are  listed  in  the  Pay-roll  Cheque  Register 
Form  42,  and  the  total  amount  of  cheques  issued  each  month  is  entered 
upon  the  credit  side  of  the  Cash  Book,  as  shown  on  Form  37. 


OPERATING  CASH 


125 


CASH  DISBURSEMENTS  FOR  BILLS  AUDITED 
Cash  disbursements  for  bills  audited  are  made  by  cheque  for  all  Bills 
Audited  as  shown  by  approved  vouchers  which  latter  are  receipted  at  the 
time  of  payment  and  returned  to  the  accounting  Department, 


SHATTUCK  ARIZONA  COPPER  (JO                v 
PAT  ROLL 
CHECK  REGISTER 

PAYABLE  TO 

™ 

AMOUNT 

-,-j 

MONTH 

Balance  or  footing*  brought  forward 

W 

01 

02 

03 

01 

' 

1 —  -~       ~      '    

12 

— n 

' ' 

43 

44 

45 

46 

47 

48 

40 

Balance  or  footings  earned  forward 

Form  42. 


DENN    ARIZONA   COPPER    CO. 

BILLS  ADDITED 
CHECK    REGISTER 

DATE 

PAYABLE  TO 

NUMBER 

AMOUNT 

fejrf 

1 

MONTH 

AMOUNT 

Balance  of  footings  brought  forward 

00 

01 

02 

0<) 

04 

0!> 



r — 

I " ' 1 

40 

' 

1 

47 

41 

Bulanie  of  footings  carried  forward 

4'J 

Form  43. 

Cheques  issued  for  Bills  Audited  are  listed  in  the  Bills  Audited  Cheque 
Register  Form  43,  and  the  total  amount  of  cheques  issued  each  month  is 
entered  upon  the  credit  side  of  the  cash  Book,  as  shown  on  Form  37. 

REMITTANCES  TO  TREASURER 
When  the  cash  received  from  the  sale  of  principal  product  is  remitted 
direct  to  Treasurer,  it  is  very  seldom,  if  ever,  that  the  Operating  Depart- 


126 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


merit  makes  a  remittance  to  the  Treasurer.  However,  when  all  cash 
receiptsfrom  sale  of  production  are  delivered  to  the  operating  Department, 
monthly  or  occasional  remittances  are  made  to  Treasurer  of  the  surplus 
cash  not  required  for  operation.  Such  remittances  are  made  by  cheque, 
draft  or  deposit  to  the  credit  of  the  Treasurer  accompanied  by  remittance 
vouchers,  which  are  receipted  and  returned  by  the  Treasurer. 

When  the  operating  accounting  provides  for  remittances  to  the  Treas- 
urer it  is  best  to  have  a  separate  column  in  the  Cash  Book  for  such  trans- 
fers instead  of  passing  same  through  the  Bills  Audited  Record  and  the 
Accounts  Payable  Account. 

POSTING  OF  CASH  BOOK  CREDITS 

At  the  end  of  the  month  the  credit  side  of  the  Cash  Book  is  summarized 
for  posting  to  the  General  Ledger,  as  shown  by  Form  37,  as  follows: 


Account 

Amount 

Folio 

Debit                     Credit 

Labor,  December 

$  32,545.74 

34,726.88 

56,233.99 

14,353.71 

$137,860.32 

Labor,  January 

Bills  Audited,  Decem'ber 

Bills  Audited,  January 

46 

Accounts  Pavable : 

16 

To  Cash 

$137,860.32 

The  postings  to  the  debit  of  labor  and  Bills  Audited  in  the  subsidiary 
ledger  and  the  total  to  Accounts  Payable  in  the  General  Ledger  closes 
out  the  amount  of  the  Accounts  Payable  liabilities  that  have  been 
liquidated  during  the  month. 

The  credit  posting  to  Cash  Account  in  the  General  Ledger  reduces  the 
cash  the  amount  that  has  been  distributed. 


PETTY  CASH  ACCOUNT 

In  order  to  take  care  of  small  items  of  expense  that  must  be  met  during 
the  month  without  going  through  the  procedure  of  drawing  a  cheque  and 
voucher  for  each  petty  item,  a  petty  cash  account  is  created  by  drawing 
a  voucher  and  cheque  in  favor  of  the  company  for  the  amount  desired  to 
have  on  hand,  and  this  cheque  is  cashed  and  the  money  placed  in  a  sepa- 
arte  cash  drawer,  and  a  charge  is  made  to  Petty  Cash  in  the  General  Ledger. 
A  pad  of  blank  receipts  is  purchased  and  as  a  payment  of  cash  is  made 
a  receipt  therefore  is  taken,  or  a  receipted  bill  is  obtained.  When  the 
amount  of  the  petty  cash  has  been  disbursed,  or  nearly  so,  a  voucher  is 
drawn  for  the  amont  of  the  receipted  bills  in  the  Petty  Cash  Drawer,  and 


OPERATING  CASH 


127 


Bank  &  Cash  Reconciliation 
January  31,  1918 
Bank  Account: 

Bank  Balance  1-1-18 $147 ,504 .  92 

Deposits  per  Bank  Book 96,594.26 

$244,099.18 

Checks  as  per  Bank  List 145 ,573 .  28 

Cash  as  in  Bank  1-31 $  98,525.90 

Cash  in  Office 160.00 

$  98,685  .90 

Cash  Account 

Cash  Book  Balance  1-1-18 $222,174.43 

Receipts  as  per  Cash  Book 11 ,619. 16 

$233,793.59 

Checks  A-2378  to  A-2477  and  77891  to  79229 137,860.32 

Balance  as  per  Cash  Book  1-31 $  95,933.27 

Checks  Outstanding 2,752.63 

$  98,685.90 


Number 

Amount 

Number 

Amount 

Number 

Amount 

A-1785 

42.65 

71001 

24.68 

78441 

15.30 

2456 

53.10 

71580 

7.88 

78512 

30.00 

2463 

450.00 

71620 

34.78 

78514 

30.00 

2464 

2.00 

71640 

0.61 

78549 

0.67 

2465 

2.00 

72523 

16.65 

78690 

2.30 

2466 

4.00 

72543 

0.85 

78767 

3.66 

2467 

7.00 

72817 

1.60 

78814 

33.36 

2468 

2.58 

72943 

2.45 

78819 

69.90 

2469 

4.65 

73043 

0.72 

78899 

67.80 

2470 

11.19 

73350 

0.10 

79012 

42.85 

2471 

117.29 

74873 

0.50 

79014 

26.10 

2472 

91.27 

75251 

14.98 

79023 

65.55 

2473 

5.00 

75483 

4.14 

79154 

10.73 

2475 

43.98 

75825 

1.28 

79168 

20.40 

2476 

48.33 

75869 

1.34 

79197 

31.35 

2477 

833 . 72 

76455 

0.10 

79226 

14.55 

64526 

1.90 

76463 

2.55 

79228 

65.55 

64727 

2.75 

76489 

0.67 

79229 

51.00 

64862 

5.85 

76458 

1.60 

2,752.63 

65050 

26.25 

76552 

0.30 

65188 

1.16 

76555 

2.61 

66446 

16.05 

76871 

68.55 

67102 

0.67 

77068 

4.45 

67497 

1.00 

77297 

19.34 

67925 

2.70 

77856 

0.29 

69006 

3.13 

77862 

26.66 

69052 

0.85 

78017 

1.00 

69113 

2.35 

78074 

0.09 

69465 

1.00 

78087 

5.10 

69678 

26.38 

78190 

5.10 

70265 

6.00 

78236 

38.45 

70413 

0.79 

78286 

64.55 

Form  44. 


128  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

is  entered  in  the  Bills  Audited  Record  with  the  distribution  of  the  expense 
to  the  proper  accounts,  and  a  cheque  in  favor  of  the  Company  is  drawn  for 
the  amount  of  the  expense  voucher  and  is  cashed,  bringing  the  petty  cash 
back  to  the  original  amount. 

Reconcilement  of  Bank  and  Cash  Account. — As  a  rule  the  operating 
cash  is  kept  in  one  bank,  so  that  there  is  no  need  for  a  bank  account  in 
the  General  Ledger.  However,  due  to  the  fact  that  all  the  cheques 
issued  and  charged  against  the  cash  account  may  not  have  been  cashed 
by  the  bank,  it  is  necessary  at  the  end  of  each  month  to  obtain  from  the 
bank  a  statement  of  account,  together  with  the  cancelled  cheques  that 
have  been  paid  by  it. 

This  bank  statement  is  checked  against  the  Cash  Account  to  ascertain 
that  all  cash  received,  as  per  the  Cash  Book,  was  deposited  and  the 
cancelled  cheques  are  checked  against  the  Cheque  Register  to  determine 
what  cheques,  if  any,  are  outstanding  and  unpaid.  A  Reconcilement 
Statement  (Form  44)  is  then  drawn  up  to  show  either  that  the  bank 
and  Cash  Accounts  are  in  agreement,  or  that  there  are  certain  dis- 
crepancies. If  there  are  any  discrepancies,  the  reason  therefor  is 
ascertained  and  adjustments  made  immediately. 

The  check  of  the  bank  and  Cash  Accounts  is  very  important  and 
should  be  performed  with  due  diligence  immediately  following  the  end 
of  each  month  so  as  to  detect  any  error  or  fraud  and  make  corrections 
before  such  matters  become  complicated. 

Unpaid  Cheques. — Usually  there  is  an  accumulation  of  uncalled  for 
pay  cheques  that  are  of  small  amounts,  due  to  the  fact  that  employees 
have  failed  to  call  for  their  time  and  have  left  town  and  cannot  be  located. 
Again  and  employee  will  carry  about  on  his  person  a  number  of  cheques 
and  will  lose  one  or  more  and  will  fail  to  make  claim  and  furnish  bond 
for  a  duplicate.  Usually  there  is  no  way  to  locate  such  persons,  or  the 
individual  amount  is  too  small  to  justify  advertising. 

A  record  of  these  cheques  is  carried  in  the  monthly  Reconcilement 
and  when  a  number  have  accumulated  for  a  period  of  time  of  more  than 
four  years,  they  are  charged  to  Cash  and  credited  to  "Refunds  and 
Discounts — Uncalled  for  Cheques."  Should  an  owner  of  one  of  these 
cheques  show  up  after  the  cheque  had  been  charged  off,  a  new  cheque  can 
be  issued. 


.    CHAPTER  XIII 
OPERATING  STATEMENT  AND  SCHEDULES 

Having  accounted  for  the  operations  of  the  business  through  the 
stages  of  Disbursements,  Production,  Sales,  Receipts  and  Cash,  we  are 
now  in  position  to  take  a  statement  from  the  ledger  that  will  show  the 
true  condition  of  production  operations  at  the  end  of  the  operating 
period. 

To  obtain  such  a  statement  was  the  principal  object  in  mind  in  per- 
forming all  of  the  preceding  accounting  operations  which  were  executed 
so  as  to  give  the  information  desired  in  the  Operating  Statement.  We 
are  now  concerned  with  compiling  the  information  that  has  been  recorded 
in  the  General  Operating  Ledger  in  such  manner  as  to  present  in  proper 
form  the  true  condition  of  the  business  as  of  a  certain  date. 

TRIAL  BALANCE 

Before  beginning  to  compile  the  Operating  Statement  it  is  customary 
to  take  from  the  ledger  a  statement  of  balances  in  the  order  in  which 
they  appear  in  the  ledger,  and  to  add  up  the  debits  and  credits  to  ascertain 
if  the  ledger  accounts  are  in  balance. 

Such  a  statement  is  known  as  a  Trial  Balance,  when  both  the  ledger 
debits  and  the  ledger  credits  are  in  balance.  In  a  great  many  cases  this 
Trial  Balance  is  given  to  the  Manager  and  others  in  the  form  in  which 
the  accounts  stand  upon  the  ledger.  In  other  cases  the  debits  and 
credits  are  separated  into  different  groups,  but  with  no  logical 
arrangement  of  the  accounts. 

When  this  is  done  it  is  impossible  for  the  Manager,  Auditor,  Treasurer 
or  other  officers  to  obtain  any  definite  information  of  the  business  without 
re-arranging  the  accounts  upon  the  Trial  Balance  Sheet. 

The  only  value  of  the  Trial  Balance  is  to  show  that  the  ledger  is  in 
balance,  and  it  should  never  leave  the  Accounting  Office. 

OPERATING  STATEMENT  AND  SCHEDULES 

Having  recorded  upon  the  ledger  the  complete  operating  data  and 
having  taken  a  Trial  Balance  and  found  the  ledger  accounts  in  balance, 
the  Operating  Statement,   showing  the  condition  of  the  business,   is 
compiled  from  the  Trial  Balance  into  groups,  as  follows: 
a  129 


130  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Debit  Accounts  Credit  Accounts 

1.  (a)  Expense  Accounts.  1.  Revenue  Accounts. 

(b)  Depreciation  and  Depletion. 

(c)  Previous  Year's  Production. 

2.  (a)  Cash.  2.  (a)  Current  Accounts  Payable 

(6)  Receivables.  (b)  Accrued     Accounts     Payable     Re- 

serves. 
3.  Deferred  Credits. 

3.  Production  Assets.  4.  a.  Depreciation  Reserve. 

4.  Deferred  Assets  and  Expense.  b.  Depletion  Reserve. 

5.  Fixed  Assets.  5.  Treasurer's  Previous  Year's  Account. 

6.  Treasurer's  Current  Year's  Account. 

The  arranging  of  the  ledger  accounts  into  groups  and  the  listing  of  the 
groups  in  the  order  as  shown  above  gives  an  Operating  Statement,  as 
follows: 

Operation  Statement  of  the  Condition  of  the  Business  on  January  31,  1918 

Debits 
Exploration  and  devel- 
opment   $13,182.42 

Operating  Expense 124,837.16     $138,019.58 

Depreciation  of  Equip- 
ment   3,568.33 

Depletion  of  Mines 47 ,  514 .  43         51 ,  082 .  76 

Previous  Year's  Produc- 
tion   648,970.17     $     838,072.51 

Cash $  95,933.27 

Due  for  Copper  Shipped.  $258,129.53 

Sales  Agent 67,155.93     $190,973.60 

Due  for  Gold  and  Silver .  10 ,  631 .  70 
Current    Accounts    Re- 
ceivable   11,200.38     $212,805.68     $     308,738.95 

Ores  on  Hand  at  Cost ...  5 ,  352 .  80 
Unsold    Bullion    at    In- 
ventory   45,670.85 

Sold    Metal    in  Transit.  664,934.88     $     715,958.53 

Materials  and  Supplies . .  $144 ,  307 .  12 
Unexpired   Insurance. . .  1 ,  199 .  38 

Replacements 1 ,  520 .  62 

Suspense 220.00     $     147,247.12 

Construction  and  Equip- 
ment   304,855.58 

Treasurer's   Current 

Year's  Account 106 ,  719 .  47 

$2,421,592.16 


OPERATING  STATEMENT  AND  SCHEDULES 


131 


Ore  and  Bullion  Account 

Future  Sales $899,934.88 

Over-Sales 235,000.00 

Copper  Sales  Deliveries . 

Gold    and    Silver    Sales 

Special  Ore  Sales 

Refunds  and  Discounts. 

Current  Accounts  Pay- 
able  

Bullion,  Freight  and  Re- 
fining Not  Due 

Selling  Expense  Not  Due 

Reserve  for  Accidents. . . 

Reserve  for  Taxes 

Reserve  for  Depreciation 

Reserve  for  Depletion.. 

Treasurer's  Previous 
Year's  Account 


Credits 
$  51,023.65 

664,934.88 

205,119.68 

$10,631.70 

3,090.16 


$34,330.80 
10,436.16 
44,695.54 
52,170.57 


$921,078.21 

$  13,721.86 
718.84 

$133,915.78 


$     935,518.91 


$141,633.07     $ 


275,548.85 

229,398.20 

47,514.43 

933,611.77 
$2,421,592.16 


In  order  that  the  Operating  Statement  may  be  quickly  analysed  and 
made  as  valuable  as  possible,  schedules,  detailing  the  accounts  shown 
on  the  Operating  Statement  should  be  made  out  similar  to  Schedules 
below  numbers  1  to  4  inclusive. 

Schedule  1 
Analysis  of  Cash,  Receivables  and  Payables,  January,  31,  1918 


Receivables  and  Cash 

Due  Within 

Indefinite 
Or  Over 

Four 
Months 

Total 

One 
Month 

Two 

Months 

Three 
Months 

Four 
Months 

Due  for  Copper  Shipped  .  . 
Due  for  Gold  and  Silver .  . 
Current  Accounts  Receiv- 
able  

$  10.631.70 
11,200.38 

$43,654.18 

$147,319.42 

$190,973.60 
10,631.70 

11,200.38 

$  21,832.08 

$43,654.18 

$147,319.42 

$212,805.68 

Cash 

95,933.27 

95,933.27 

$117,765.35  $43,654.18  $147,319.42 

$308,738.95 

Payables 

Current  Accounts  Payable 
Accrued     Accounts     Pay- 
able: 

Freight  and  Refining.  .  . 

Selling 

Reserve  for  Accidents  .  . 

Reserve  for  Taxes 

$133,915.78 
4,000.00 

$10,010.10 
2.788.91 

$10,000.25 
3,6.54.90 

$14,320.45 
3,992.35 

42,449.52 

$40,695.54 
9,721.05 

$133,915.78 

33,330.80 
10,436.16 
44,695.54 
52,170.57 

$137.915.78|$12,799.01 

$13,655.15  $60,762.32 

$50, 516. 59 [$275,548  85 

132 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Schedule  2 

Details  of  Ore  Bullion  and  Sales  Accounts  on  January  31,  1918 

Memorandum  of  Production  and  Sales 

Unsold  Copper  January  1st,  1918 00 

January  Production 849 ,440 

Apply — On  January  Sales  Deliveries 520 ,390 

March  Sales  Deliveries,  Over-Sales 23 ,  113 

Overs  on  October,  1917  Deliveries 1,465     544,968 

Unsold  Copper  1-31-18 304,472 

Memorandum  of  Refinery  and  Sales  Deliveries 

January  Refinery  Deliveries 734 ,538 

Refined  Copper  on  Hand  1-1-18 00 

Overs  on  October,  1917  Deliveries -.  .        1 ,465 

October,  1917  Sales  Deliveries 427,234 

November,  1917  Sales  Deliveries 305,839     734,538 

Refined  Copper  on  Hand  2-1-18 00 

Ores  on  Hand  at  Cost 

287.508  Dry  Tons  at  Mine @9.2833     $2,669.02 

277.777  Dry  Tons  at  Smelter @9.6616       2,683.78 

$5,352.80 

Unsold  Bullion  at  Inventory 
1,705,191  lb.  Copper  in  Transit,  as  follows: 

Month  Refinery  Deliveries 

February 254 ,323 

March 228,386 

April 662,242 

May 560,240 

Total 1,705,191 

1,400,719*  lb.  Short  on  November,  December  and  January 
304,472  lb.  Unsold  Copper  @  15  cts $45,670.85 

Sold  Metal  in  Transit 
Pounds         Delivery  Month       Average  Price  Amount 

56 ,  499  November  28 .  406  cts.  $  1 9 ,  793 .  40 

93,830  December  28.176  cts.  26,437.33 

1,250„390  January  25.434  cts.  318,029.15 

680,000  February  26.476  cts.  180,037.50 

460,000  March  26.226  cts.  120,637.50        $.664,934.88 

27540,719  26.171  cts. 

Production  Oversales 
Pounds  Delivery  Month       Average  Price  Amount 

500,000  June  23.5  cts.  $117,500.00 

500,000  July  23.5  cts.  117,500.00 

1,000,000  23.5  cts.  $235,000.00 

1  Reason  for  Refinery  Deliveries  being  over-sold  was  due  to  strike  in  July  and 
August  at  Mine  and  Smelter. 


OPERATING  STATEMENT  AND  SCHEDULES  133 

Schedule  3 
Details  on  Material  and  Supply  Stocks  March,  1919 


Stock  Record  as  Per  Ledger 

Stock  No. 

On  Hand 
1-19 

Received 
March 

Total 

Issued 
March 

On  Hand 
3-31-19 

Received          Issued 
Year —          Year — 
To  Date       To  Date 

1-a 

$  25,145.82 

$6,156.79 

$  31,302.61 

$     768.06 

$  30,534.55 

$21,619.77 

$  3,676.04 

2-a 

948.83 

2.76 

951.59 

7.28 

944.31 

172.99 

598.06 

5-a 

424.44 

1.29 

425.73 

0.00 

425.73 

290.15 

533.59 

6-a 

12,770.40 

135.47 

12,905.87 

56.40 

12,849.47 

7,236.77 

7,251.55 

7-a 

309 .  25 

67.32 

376 . 57 

1.73 

374.84 

184.37 

419.14 

8-a 

317.79 

3.17 

320.96 

125.27 

195.69 

37.18 

205.08 

9-a 

50.04 

8.81 

58.85 

3.53 

55.32 

233.51 

188.83 

Mill 

$  39,966.57 
$  11,463.33 

$6,375.61 
$2,509.79 

$  46,342.18 
$  13,973.12 

$     962.27 
$1,054.86 

$45,379.91 
$  12,918.26 

$29,774.74 
$  4,334.19 

$12,872.29 

1 

$  3,270.64 

2 

15,209.27 

0.00 

15,209.27 

62.80 

15,146.47 

1,384.28 

2,836.23 

3 

8,118.85 

0.00 

8,118.85 

1,514.23 

6,604.62 

599.06 

9,755.35 

4 

6,918.91 

0.00 

6,918.91 

2,819.56 

4,099.35 

9,252.19 

12,084.98 

5 

34,341.37 

219.98 

34,561.35 

1,297.56 

33,263.79 

13,755.49 

11,745.96 

6 

20,256.74 

127.96 

20,384.70 

238.61 

20,146.09 

2,398.03 

2,289.62 

7 

5,802.59 

377.55 

6,180.14 

44.55 

6,135.59 

2,052.62 

587.09 

8 

720 . 55 

22.50 

743.05 

82.78 

660.27 

574.39 

434.06 

9 

2,207.78 

53.79 

2,261.57 

38.72 

2,222.85 

1,266.70 

508.06 

S105.039.39 

$3,311.52 

$108,350.96 

$7,153.67 

$101,197.29 

$35,616.95 

$43,511.99 

Grand  Total 

$145,005.96 

$9,687.18 

$154,693.14 

$8,115.94 

$146,577.20  $65,391.69 

$56,384.28 

Purchase  Data 


Item 


Orders  Placed 

Invoices  Received 

Items  on  Invoices  Checked 

Expense  Bills  Checked 

Express  Bills  Checked 

Cash  Discounts  Taken 

Credit  Memorandums  Received 

Freight  Claims  Filed 

TOTAL  CREDITS 


Number 

Amount 

This— 
Month 

Year — 
To  Date 

This— 
Month 

Year — 
To  Date 

44 

108 

254 

29 

11 

146 
330 
898 
168 
39 

$1,094.39 

443.31 

171.48 

$48,393.42 

11,907.34 

263.07 

21 
10 

1 

69 

23 

6 

35.79 

331.03 

1.39 

199.99 

946.93 

8.12 

$368.21 

$1,155.04 

134  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Schedule  4 
Cash  Settlements  with  Sales  Agent  January,  1918 

On  Deliveries  for  Month  op 

Pounds 

October 100,378 

November 200, 035 

December 80,320 

380,733 

Less  Deductions: 

Freight 473.81 

Excess  Freight 693.84 

Discounts,  etc 396 .  44 

Net  Settlements  f.o.b.  New  York 

Commissions  and  Telegrams 

Net  Cash  Settlements 

January  Receipts  (Treasurer's  Office) $106,719.47 

Partial  Payments  on  Hand  1-1-1918 64,900.00 

$171,619.47 

Partial  Payments  on  Hand  1-31-18 $  67,500.00 


Gross 
Receipts 

$  27,353.01 
55,509.72 
23,393.25 

$106,255.98 


$     1,564.09 


$104,691.89 

572.42 

$104,119.47 


$104,119.47 


Analysis  of  January  Settlements  as  Above 


Pounds 

Gross 

Net  New  York 

For  Delivery 

Per 
Pound 

Amount 

Per 
Pound 

Amount 

Domestic. . 

380,733 

0.2790       106.255.98 

0.27497      «1 04. 691   89 

' 

The  Manager,  Auditor  or  Treasurer,  as  well  as  the  other  officers,  upon 
receiving  such  an  operating  statement  can  clearly  see  the  condition  of  the 
business  and  readily  obtain  from  the  statement  and  schedules  the  informa- 
tion desired. 

On  the  debit  side  of  the  statement  the  Operating  Expense  and  the 
Previous  Year's  Production  charge  is  listed  first,  and  against  this,  on 
the  credit  side,  is  listed  the  revenue  accounts.  The  Operating  Expense 
and  the  revenue  are  the  matters  of  first  importance  to  the  Manager  and 
other  officers  and  therefore  are  listed  first. 

A  Cost  Sheet  giving  an  analysis  of  the  Operating  Expense  and  a  state- 
ment of  Production  is  always  furnished  the  Manager  at  the  same  time 
the  Operating  Statement  is  delivered  to  him,  and  it  is  customary  for  the 
Manager  to  call  a  monthly  meeting  of  all  Operating  Department  Heads 
and  to  go  over  the  expense  and  costs  and  production  results,  receive 
suggestions,  issue  instructions  and  adjust  complaints. 

As  soon  as  the  Sales  Deliveries  for  the  year  are  sufficient  to  offset  the 
charge  for  the  previous  year's  production  that  was  unliquidated  at  the 
beginning  of  the  year,  it  is  best  to  close  out  this  charge  for  Previous 


OPERATING  STATEMENT  AND  SCHEDULES  135 

Year's  Production  to  the  Sales  Deliveries,  although  this  is  not  necessary 
and  the  debit  account  can  be  carried  on  the  Operating  Statement  until 
the  end  of  the  year  if  desired. 

The  matters  of  next  importance  are  Cash  and  Receivables  as  compared 
with  Current  and  Accrued  Accounts  Payable  and  therefore  these  are 
listed  second,  and  a  Schedule  of  Receivables  and  Payables  (Schedule  1)  is 
made  up  to  guide  the  Manager,  Chief  Clerk  and  Treasurer,  as  to  the  amount 
of  cash  that  is  necessary  to  keep  in  the  Operating  Account.  Some 
believe  that  the  information  as  to  whether  or  not  there  is  sufficient  cash 
and  receivables  to  meet  the  current  and  accrued  accounts  payable  is  of 
first  importance  and  list  the  accounts  that  show  this  information  first. 
However,  the  determination  of  whether  or  not  the  revenue  is  sufficient 
to  take  care  of  the  expense  of  operation,  and  the  analyzing  of  the  revenue 
accounts  from  Schedule  2  to  ascertain  when  cash  receipts  may  be  ex- 
pected are  matters  that  must  receive  attention  before  any  intelligent 
conclusion  can  be  reached  in  regard  to  taking  care  of  the  Accounts  Pay- 
able when  the  cash  and  receivables  are  insufficient  to  meet  the  outstand- 
ing indebtedness. 

The  amount  of  unliquidated  production  as  shown  by  the  Production 
Asset  Accounts  is  then  given  attention.  In  order  that  these  accounts 
may  be  carefully  studied  a  schedule  showing  the  details  of  Ore,  Bullion 
and  Sales  Accounts  is  made  up,  as  shown  by  Schedule  2. 

This  schedule  allows  a  careful  study  to  be  made  of  the  Production 
Asset  Accounts  as  to  deliveries  of  metal,  unsold  and  future  sales  of  metal, 
and  furnishes  the  necessary  information  to  the  Manager,  the  Treasurer 
and  the  Directors  in  instructing  the  Sales  Agent  in  regard  to  sales,  and 
what  will  be  the  cash  receipts  from  production  in  the  future  that  will  be 
available  for  operation  or  dividends,  etc. 

The  deferred  Assets  and  Expense  and  the  Construction  and  Equip- 
ment are  carefully  gone  over  by  the  Manager,  in  consultation  with  the 
Purchasing  Agent,  the  Chief  Clerk,  and  the  Operating  Superintendent. 

The  Purchasing  Agent  furnishes  a  detailed  statement  of  the  materials 
and  supplies,  as  per  Schedule  3,  and  the  questions  of  whether  or  not  mater- 
ial stocks  are  too  small,  too  large,  or  normal  are  decided,  and  the  purchas- 
ing policy  fixed  for  the  next  thirty  days  or  longer.  If  there  should  be  a 
stock  of  any  material  which  the  Operating  Department  has  discontinued 
to  use,  the  means  of  its  disposal  is  agreed  upon,  and  all  complaints  or 
suggestions  in  regard  to  materials  are  considered.  At  the  same  time  the 
amount  and  cost  of  monthly  Repairs  and  Replacements  and  Construction 
and  Equipment  are  gone  into,  and  all  suggestions  and  proposals  for  future 
repairs  and  replacements  and  plans  for  new  construction  are  submitted 
and  disposed  of.  The  Schedule  of  Expense  and  Cost,  of  Repairs,  Replace- 
ments and  Construction  and  Equipment  are  included  with  Monthly  Cost 
Sheet. 


136  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

The  Chief  Clerk  explains  the  nature  and  reason  for  all  suspense  items. 

The  only  other  debit  item  on  the  Operating  Statement  is  the  Treas- 
urer's Current  Year's  Account.  The  details  of  the  charges  to  this  account 
each  month  is  shown  by  Schedule  4,  being  the  Cash  Settlements  with 
Sales  Agent.  The  Treasurer's  Current  Year's  Account  is  closed  into  the 
Previous  Year's  Account  when  the  Operating  Books  are  closed  at  the  end 
of  the  year. 

At  the  beginning  of  operations  the  Treasurer's  Current  Year's  Account 
is  a  credit  account  until  the  amount  of  production  sales  receipts  delivered 
to  Treasurer  are  in  excess  of  the  Treasurer's  remittance  to  Operating 
Department,  when  the  Treasurer's  Current  Year's  Account  becomes  a 
debit  balance. 

The  Treasurer's  Previous  Year's  Account  always  shows  as  a  credit 
balance  as  long  as  the  property  is  operating  at  a  profit. 

On  the  credit  side  of  the  Operating  Statement  we  have  yet  to  consider 
the  Reserve  for  Depreciation  and  Reserve  for  Depletion.  The  nature 
of  these  charges  were  explained  under  Disbursements.  In  the  Yearly 
Statement  at  the  end  of  the  year  there  is  included  a  Summary  Schedule  of 
the  Construction  and  Equipment,  the  amount  of  Depreciation  charged 
off  and  the  net  amount  to  be  depreciated. 

The  Depletion  Reserve  is  transferred  to  the  Treasurer's  Books  at  the 
end  of  the  year,  and  is  kept  on  the  Operating  Books  to  enable  the  Opera- 
ting Department  to  ascertain  the  actual  operating  profit. 

Due  to  the  fact  that  the  Operating  Books  are  closed  only  once  each 
year,  we  will  assume  a  Yearly  Statement  to  be,  as  on  following  page. 

The  Operating  Balance  Sheet  or  Operating  Statement,  should  always 
show  the  complete  accounts  for  Operating  Disbursements,  Production, 
Sales  and  Receipts,  so  that  the  Operating  Manager  may  have  a  complete 
and  intelligent  statement  of  the  results  of  that  portion  of  the  business 
for  which  he  is  responsible. 

Sometimes  the  Sale  and  Receipt  Accounts  are  kept  upon  the  Trea- 
surer's Book  instead  of  the  Operating  Books.  When  this  is  done  the 
Manager  is  informed  as  to  Operating  Disbursements  only  and  can  not 
obtain  from  his  records  a  correct  statement  of  operating  results. 

In  order  to  insure  that  the  Operating  Statement  is  complete,  the 
head  of  the  Operating  Accounting  Department  must  be  familiar  with  all 
the  details  of  operations,  as  well  as  with  all  the  details  of  the  business 
transactions  with  others  that  in  any  way  affect  the  assets  or  liabilities  of 
operating,  and  that  influence  the  costs  and  income. 

All  agreements  made  by  the  Manager  or  Department  Heads  involving 
payments  of  money,  or  transfer  of  assets,  should  be  confirmed  in  writing 
and  copy  placed  on  file  in  the  Accounting  Office. 


OPERATING  STATEMENT  AND  SCHEDULES  137 

Operating   Statement  of   the   Condition   of   the   Business   at  the  End  of 

the  Year  1918 

Exploration  and  Development $  170,497.08 

Operating  Expense,  Copper 1 ,  345 ,  692  .  80     $1,516, 189  .  88 

Depletion  of  Mine's  Copper  Ores $  498,614.51 

Depreciation  of  Mine  Equipment 18  ,000.00           516,614.51 

Previous  Year's  Production 648,970.17     $2,681,774.56 

Operating  Expense,  Mill  Lead $  245,293.66 

Operating  Expense,  Direct  Lead 5 ,  588 .  84     $     250 ,  882 .  50 

Depletion  of  Mine's  Lead  Ores $  6 ,  102 . 46 

Depreciation  of  Mill  Equipment 18,474.50              24,576.96           275,459.46 

Cash $       52,388.78 

Due  for  Copper  Shipped $212,576.00 

Sales  Agent 344 . 07     $  212,920.07 

Due  for  Gold  and  Silver 23,467.54 

Current  Accounts  Receivable 5 ,  736 .  57            242 ,  124  .  18           294 ,  507  96 

Copper  Ores  on  Hand  at  Cost $  4  , 466 .  46 

Unsold  Copper  at  17.643  cts 489,373.42 

Sold  Copper  In  Transit 0  .  00     $     493 ,  839  .  88 

Lead  Ore  Production $  4,536.91 

Lead  Ore  In  Process 863  .  73 

Lead  Concentrates 53,874.04              59,274.68           553,114.56 

Materials  and  Supplies $     139,280.73 

Unexpired  Insurance 0  .  00 

Replacements 172  .  08 

Suspense 8,735.91           148,288.72 

Construction  and  Equipment 547 ,290 .  15 

Treasurer's  Current  Year's  Account 730 ,  686 .  58 

$5,231,121.99 

Ore  and  Bullion  Account— Copper $  493 ,  839  .  88 

Future  Sales  Contracts 0  .  00 

Copper  Sales  Deliveries 2,319,137.62     $2,812,977.50 

Gold  and  Silver  Sales,  Copper  Ore $  182 ,049  .  69 

Special  Ore  Sales 0.00  182,049.69 

Refunds  and  Discounts 4,980.74     $3,000,007.93 

Mill  Lead  Bullion  Sales $      149,560.92 

Mill  Lead  Gold  and  Silver $81 ,466.33 

Sorted  Mill  Lead  Ore 6,356.09     $  87,822.42 

Direct  Lead  Ore  Settlements 26,011.91           103,834.33           263,395.25 

Current  Accounts  Payable $     100,124.61 

Bullion  Freight  and  Refining  Not  Due $  45,868.38 

Selling  Expense  Not  Due 15,713.31 

Reserve  for  Taxes 36,760.58              98,342.27 

Reserve  for  Accidents 68,618.82           267,085.70 

Reserve  for  Depreciation 262 ,  304  .  37 

Reserve  for  Depletion 504,716.97 

Treasurer's  Previous  Year's  Balance 933,611 .77 

$5,231,121.99 


CHAPTER  XIV 
OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES 

The  operating  Profit  and  Loss  Account  is  usually  opened  and  closed 
only  once  each  year  and  then  at  the  end  of  the  year  when  the  operating 
books  are  closed. 

However,  each  month  for  the  information  of  the  Manager  and  other 
officers  and  the  directors,  a  statement  of  actual  operating  profit  is  made 
up  from  the  Operating  Statement  for  the  year  to  date,  also  an  Estimated 
Statement  of  Monthly  Operating  Profit  is  drawn.  The  Monthly  Esti- 
mated Profit  and  Loss  Statement  uses  the  production  at  the  average 
market  price  of  metals  for  the  month  of  production,  or  the  average  price 
of  future  sales  when  metals  have  been  sold  ahead,  and  the  present  market 
is  unsteady. 

The  Statement  of  Actual  Profit  and  Loss  is  generally  for  the  year  to 
date  and  uses  the  amount  of  sold  ore  and  metal  shown  upon  the  books 
plus  the  amount  of  unsold  ore  and  metal  at  inventory. 

When  the  production  is  being  sold  as  produced  the  statement  of 
actual  profit  is  the  best  guide  as  to  the  actual  results.  When  there  is 
being  carried  a  large  amount  of  unsold  production  at  inventory  which  it  is 
the  intention  to  sell  before  the  end  of  the  year,  the  actual  statement  of 
profit  or  loss  as  shown  by  the  Operating  Statement  is  not  a  safe  guide  unless 
an  addition  or  subtraction  is  made  thereto  to  adjust  the  unsold  produc- 
tion from  inventory  prices  to  present  actual  market  prices.  A  statement 
of  actual  profit  or  loss  for  the  period,  as  shown  by  the  Monthly  Operating 
Statement,  would  be,  as  follows: 

Statement  op  Actual  Operating  Profit  or  Loss  as  Shown  by  the  Operating 

Statement 

Amount  Per  Pound 

Copper  Ore,  Bullion  and  Sales,  Net $  97,446. 40  *26. 171  cts. 

Operating  Expense 138,019.88  16.248  cts. 

Returns  on  Copper  (Loss) $  40 , 573 . 48  9 .  923  cts. 

Gold  and  Silver,  Sales,  etc $13,721 .86 

Refunds  and  Discounts 718.84  $14,440.70  1.700  cts. 

Total  Earnings  (Loss) $  26,032.78  11.623  cts. 

Depletion  and  Depreciation 51 ,  082 .76  6 .  014  cts. 

Net  Operating  Earnings  (Loss) $  77 ,  115 .  54  5 .  609  cts. 

At  Rate  per  Share  per  Year 0 .  00 

1  Price  per  pound  of  copper  figured  on  Average  Future  Sales  Price,  and  gives  results 
per  pound  when  production  shall  have  been  delivered. 

138 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       139 

In  determining  the  net  amount  of  Copper  Ore,  Bullion  and  Sales  on 
the  actual  Profit  and  Loss  Statement  there  is  subtracted  from  the  amount 
of  the  Ore  and  Bullion  and  Sales  Accounts,  the  amount  of  the  Previous 
Year's  Production.  The  amount  of  the  month's  or  year's  to-date 
production  can  be  divided  into  this  net  amount  and  an  average  price 
per  pound  obtained.  However,  such  an  average  per  pound  would  be  of 
little  value  as  the  amount  of  unsold  copper  on  hand  from  month  to 
month  would  fluctuate  this  average  regardless  of  the  market  price  of 
the  metal.  Also  the  amount  of  unsold  production  carried  over  from 
the  previous  year  would  fluctuate  the  average  price  of  metal  so  obtained. 
Therefore,  it  has  been  found  more  satisfactory  to  use  the  average  sales 
price  of  copper  sold  for  future  delivery,  which  as  a  rule,  will  give  results 
very  close  to  the  actual  delivered  price. 

The  reason  for  the  loss  shown  in  the  actual  figures  is  that  in  closing 
for  the  previous  year  the  unsold  copper  was  inventoried  at  the  average 
future  sales  price,  while  the  amount  of  the  unsold  copper  carried  over 
from  previous  years  was  reduced  back  to  cost  upon  opening  the  books 
at  the  beginning  of  the  year.  This  will  adjust  itself  as  soon  as  the 
unsold  copper  is  sold  and  delivered.  For  this  reason  the  sales  price  per 
pound  of  future  sales  is  shown  opposite  the  amount,  also  an  estimated 
Profit  and  Loss  Statement  is  made  up  on  this  average  future  sales  price. 

It  is  more  satisfactory  especially  for  the  first  several  months  of  the 
succeeding  year  to  close  the  books  at  the  end  of  the  year  with  the  same 
inventory  price  for  unsold  copper  as  used  during  the  year,  and  have  this 
inventory  price  equal  the  cost.  However,  when  the  price  of  metal  is 
advancing  the  directors  sometimes  wish  to  inventory  the  unsold  metal 
at  market  in  closing  for  the  year.  While  this  helps  the  current  year,  it 
destroys  the  value  of  the  profit  and  loss  account  for  the  succeeding  year 
until  all  the  previous  year's  copper  is  sold,  also  it  is  contrary  to  the 
Treasury  Departments  Regulations  which  require  the  taKing  of  inven- 
tories at  cost  or  market,  whichever  is  lower. 

COMPARATIVE   STATEMENT  OF  OPERATING  PROFIT  AND  LOSS 

In  addition  to  the  actual  Profit  and  Loss  Statement,  it  is  customary 
to  show  the  estimated  operating  profit  in  total,  also  per  pound  of  copper, 
or  other  metal,  and  per  ton  of  ore  treated,  in  comparison  with  previous 
month  and  either  the  year  to  date,  or  the  previous  year. 

The  reason  for  fluctuations  in  profit  when  not  the  result  of  fluctuation 
in  price  of  metal  can  often  be  found  more  quickly  by  consulting  the 
per  pound  and  per  ton  statement  in  comparison  with  the  previous  month 
than  is  shown  by  the  actual  statement. 

The  following  is  the  usual  form  of  Comparative  Profit  and  Loss 
Statement : 


140  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Comparative  Statement  of  Operating  Profit 

Total 

This  Month         Previous  Yeab 

Copper $222,306.94     $3,331,567.12 

Operating  Expense. 138,019.58       1,866,408.20 

Earnings  on  Copper $84,287.36     $1,465,158.92 

Gold  and  Silver $10,631.70  $     153,547.65 

Special  Ore  Sales 3,090.16  124,874.54 

Refunds  and  Discounts 718.84 8,324.38 

Gross  Earnings $  98,728.06  $1,751,905.49 

Depletion  and  Depreciation 51,082.76  704,131.31 

Net  Earnings $  47,645.30  $1,047,774.18 

At  Rate  per  Share  per  Year 1.63  2.99 

Capital  Returned  per  Share 1 .  75  2.01 

Per  Pound  of  Copper 

Copper $0.26171  $0.27913 

Operating  Expense 0. 16248  0.15638 

Net  Earnings  on  Copper $0.09923  $0.12275 

Gold  and  Silver 0.01251  0.01287 

Special  Ore  Sales 0.00364  0.01046 

Refunds  and  Discounts 0.00085  0. 00070 

Gross  Earnings $0. 11623  $0. 14678 

Depletion  and  Depreciation 0.06014  0.05899 

Net  Earnings $0.05609  $0.08779 

Per  Dry  Ton  Smelted 

Copper $25.38  $25.51 

Operating  Expense 15 .  76  14 .  29 

Net  Earnings $9.62  $11.22 

Gold  and  Silver 1.22  1.18 

Special  Ore  Sales 0.35  0.96 

Refunds  and  Discounts 0.08  0.06 

Gross  Earnings $11 .  27  $13 .  42 

Depletion  and  Depreciation 5 .  83  5 .  39 

Net  Earnings 5. 44  8. 03 

Pounds  Copper  Per  Dry  Ton  Smelted 96.98  91.40 

Note. — Copper  for  month  figured  on  average  future  sales.  Price  on  Year, 
actual  figures  taken  from  the  Operating  Statement. 

A  comparative  statement  of  profit  for  "this  month,"  "last  month," 
and  "year  to  date"  is  also  very  popular. 

The  pounds  of  metal  recovered  per  ton  is  shown  as  any  fluctuation 
in  recovery  per  ton  will  change  the  cost  and  profit  per  pound  even  when 
the  ton  cost  is  the  same  from  month  to  month. 

It  is  always  best  to  analyze  the  Profit  and  Loss  Statement  in  connec- 
tion with  the  detail  cost  statement  showing  the  amount  of  expense  and  cost 
per  pound  and  per  ton  for  the  different  departments  and  sub-departments 
of  operation. 

The  Profit  and  Loss  Account  in  the  general  ledger  is  closed  only  at  the 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       141 

end  of  the  year.  Before  closing  the  Expense  and  Revenue  Accounts 
into  Profit  and  Loss,  adjusting  entries  are  made  for  any  difference  in 
Materials  and  Supplies  as  shown  between  the  inventory  and  the  books, 
and  the  different  revenue  accounts  are  closed  into  a  general  revenue 
account,  and  the  several  operating  expense  accounts  are  closed  into  a 
general  operating  expense  account. 

ADJUSTING  INVENTORY  TO  THE  BOOKS 

It  is  customary  for  mines  to  keep  a  perpetual  inventory  record  of 
material  and  supply  stocks,  the  storekeeper  checking  up  the  card  records 
of  each  article  occasionally  so  that  at  the  end  of  the  year  only  minor 
adjustments  are  necessary. 


INVENTORY   SHEET 

SHATTUCK   ARIZONA   COPPER  CO 

SUPPLY   DEPARTMENT 
DATE 

RTnrir  xn                                                                             nmr 

NT). 

19 

STOCK 

UNIT 

ARTICLES 

PRICE 

TOTAL  AMT. 

Oier 

Short 

On  Hind 



| 1 

Form  45. 


However,  it  is  always  best  to  take  an  inventory  once  each  year  with 
the  assistance  of  at  least  one  outside  clerk  or  accountant  whose  duty  it 
is  to  write  up  the  inventory  sheets.  This  proves  up  the  accuracy  and 
carefulness  of  the  storekeeper  and  tends  to  stimulate  interest  and  greater 
efficiency.  The  inventory  is  written  up  from  the  actual  count  of  the 
stock  of  each  article  as  shown  by  Form  45,  the  actual  amount  on  hand 
being  entered  on  the  sheets  and  is  compared  immediately  with  the 
stock  record  and  the  amount  of  overs  or  shorts,  also  is  entered  on  the 
inventory  sheets.  Thus  the  inventory  sheets  show  the  differences 
between  the  records  and  stock,  as  well  as  the  actual  stock,  and  is  a 
means  of  checking  the  work  of  the  storekeeper.  As  the  storekeeper's 
charges  for  stock  issues  must  be  supported  by  signed  requisitions,  there  is 
no  way  that  errors  can  be  covered  up  except  by  collusion  with  those  who 
withdraw  supplies. 


142 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


When  the  inventory  is  completed  the  amount  of  each  stock  is  checked 
against  the  book  records  and  a  comparative  summary  made,  as  follows: 

Materials  and  Supplies  Accounts  Adjusted  to  Inventory,  Year  1918 


Stock 

1918 
Ledgers 

Inventory 

Inventory 

Short 

Over 

$  24,959.54 
18,122.02 
15,776.13 
7,402.09 
32,027.73 
31,685.54 

$  24,445.53       $  514.01 

Iron  and  Steel 

17,967.80 
15,760.91 
6,932.14 
31,923.43 
32.901.93 

154 . 22 

15.22 

469.95 

104.30 

124.60 
5.40 

Explosives 

Fuel 

Machinery 

$1,216.39 

Pipe  and  Fittings 

5,404.27           5,279.67 

888.93               883.53 

1,162.39  :         1,474.85 

Oils  and  Greases 

Tools 

312.46 

Total 

$137,428.64     $137,569.79 

1,905.40  !         1,905.40 

46.69                 46.69 

$1,387.70 
141.15 

$1,528.85 

December  Handling 

December  Jobs  Uncompleted 

Profit  on  Supplies 

$139,380.73 
141.15 

$139,521.88 

$139,521.88 

$1,528.85 

If  the  net  difference  is  an  overage  of  the  inventory  over  the  books  an 
entry  is  made  in  the  journal  for  posting  to  the  general  ledger,  as  follows: 

Materials  and  Supplies $141 .  15 

To  Profit  on  Supplies $141 .  15 

"Amount  that  material  stocks  are  over  the  book  records  as 

shown  by  inventory  sheets." 

If  the  inventory  sheets  are  short  of  the  books  a  charge  is  made  to 
Loss  on  Supplies  and  a  credit  made  to  Materials  and  Supplies  Account. 

Also,  at  the  same  time  a  journal  entry  is  made  for  posting  to  the  stock 
ledgers  of  the  proper  debits  and  credits  to  balance  the  stock  accounts  as 
shown  by  the  Summary. 

Inventorying  Ore,  Bullion  and  Undelivered  Sales. — Before  determin- 
ing the  Gross  Value  of  Production,  the  Ore  and  Bullion  Inventories  should 
be  adjusted  to  the  average  net  operating  cost  less  selling,  or  to  the  market 
price,  if  lower.  If  certain  of  the  undelivered  sales  have  been  sold  at  less 
than  cost  or  market  price  on  December  31st  of  any  year,  then  such  sales 
should  be  inventoried  at  the  sales  price.  If  it  is  desired  to  inventory  the 
undelivered  sales  at  sales  price  when  such  price  is  higher  than  cost  or 
market,  as  has  been  customary  with  most  copper  mines,  in  order  to  get 
the  actual  income,  that  should  be  applied,  against  the  current  year's 
cost,  adjustment  will  have  to  be  made  in  making  return  for  federal  taxes, 
unless  the  Treasury  Department  should  make  new  rulings. 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       143 
MISCELLANEOUS  ADJUSTMENTS 

AH  adjustments  between  monthly  estimated  charges  for  taxes,  sell- 
ing, depreciation,  etc.,  and  actual  charges  are  made  so  as  to  be  included  in 
the  operating  expense  for  the  last  month  of  the  year,  or  are  made  as  early 
in  the  year  as  possible. 

SUMMARIZING  THE  REVENUE  ACCOUNTS 

It  is  customary  to  summarize  the  revenue  accounts  into  one  or  more 
general  accounts  before  closing  for  the  year.  This  allows  the  Operating 
Profit  and  Loss  Account  to  be  put  in  condensed  form  and  reduces  the 
number  of  accounts  to  be  transferred  to  the  Treasurer's  Books,  and 
furnishes  the  Treasurer  with  the  minimum  of  accounts  bearing  the  names 
as  they  will  appear  on  the  Income  Account  or  General  Profit  and  Loss 
Account.  Also  it  leaves  the  revenue  accounts  upon  the  operating  books 
in  proper  form  for  statistical  purposes. 

The  first  entry  to  summarize  the  revenue  accounts  is  to  close  the 
Previous  Year's  Production  into  the  Copper  Sales  Deliveries,  which 
will  leave  a  net  Copper  Sales  Deliveries  of  $1,670,167.45. 

The  Revenue  Accounts  are  now  in  condition  to  be  summarized  which 
is  done  by  journal  entries  for  postings  to  general  ledger,  as  follows: 

Gross  Value  Copper  Production $2,346,057.02 

To  Copper  Sales  Deliveries $1,670, 167.45 

Copper  Ores  and  Bullion 493,839.88 

Gold  and  Silver  Sales 182,049.69 

"Determining  the  gross  value  of  copper  produc- 
tion for  the  year." 

Gross  Value  of  Lead  Production $    263,395.25 

To  Mill  Lead  Bullion  Sales $     149,560.92 

Mill  Lead  Gold  and  Silver 81,466.33 

Sorted  Mill  Lead  Ore 6,356.09 

Direct  Lead  Ore  Sales 26,011.91 

"  Determining  the  gross  value  of  lead  production 

for  the  year." 

Refunds  and  Discounts $        4,980.74 

Freight  Refunds $     218.53 

Miscellaneous  Refunds 159. 38 

Old  Material  Sold 880. 31 

Uncalled-for  Checks 399 .  31 

Cash  Discounts 3,323.21 

Profit  on  Materials  and  Supplies $  141 .  15 

To  Miscellaneous  Operating  Earnings $         5 ,  121 .  89 

"Determining  the  Miscellaneous  Earnings  for 

the  year." 

In  closing  the  Refunds  and  Discounts  Account  it  is  necessary  to 
close  also  the  subsidiary  accounts  as  shown. 


144  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

SUMMARIZING  THE  EXPENSE  ACCOUNTS 
At  the  same  time  the  operating  revenue  accounts  are  summarized  the 
expense  accounts  are  treated  in  a  similar  manner  by  entries,  as  follows: 

Total  Copper  Operating  Expense $1 ,516, 189. 88 

To  Exploration  and  Development $     170,497.08 

Operating  Expense,  Copper 1 .  345 ,  692 .  80 

"Determining  the  Gross  Copper  Operating  Ex- 
pense for  the  year." 

Total  Lead  Operating  Expense $     250,882.50 

To  Operating  Expense,  Mill  Lead $     245 ,  293 .  66 

Operating  Expense,  Direct  Lead 5 ,  588 .  84 

"Determining  the  Gross  Lead  Operating  Ex- 
pense for  the  year." 

STATEMENT  OF  ACCOUNTS  FOR  TREASURER 

These  summarized  entries  having  been  posted  to  the  general  ledger, 
the  accounts  are  in  proper  form  to  be  transferred  to  the  Treasurer's 
records,  and  a  statement  is  taken  from  the  ledger  and  forwarded  to  the 
Treasurer  for  his  use  in  taking  the  operating  accounts  up  on  his  books. 

In  the  Treasurer's  ledger  there  is  a  credit  account  "Operating  Current 
Year's  Account"  which  offsets  the  "Treasurer's  Current  Year's  Account" 
in  the  operating  ledger.  Also  in  the  Treasurer's  ledger  there  is  a  debit 
account  "Operating  Previous  Year's  Balance"  which  offsets  the  "Trea- 
surer's Previous  Year's  Balance"  on  the  operating  books.  When  the 
operating  accounts  are  taken  up  on  the  Treasurer's  books  these  two 
accounts  balance  each  other. 

Determining  the  Yearly  Profit  or  Loss. — The  operating  accounts 
having  been  made  ready  for  closing  the  books  for  the  year,  the  revenue, 
expense  and  depreciation  and  depletion  accounts  are  closed  into  the 
operating  profit  and  loss  account  by  journal  entries,  as  follows: 
Gross  Value  of  Copper  Production $2 ,  346 ,  057 .  02 

To  Profit  and  Loss $2,346,057.02 

Miscellaneous  Operating  Earnings 5 ,  121 .  89 

To  Profit  and  Loss 5 ,  121 .  89 

"Closing  to  Profit  and  Loss  the  amount  of  the 
yearly  revenue  'from  copper.'  " 
Profit  and  Loss $1,516,189.88 

To  Total  Copper  Operating  Expense $1 ,  516 ,  189 .  88 

Profit  and  Loss 498,614.51 

To  Depletion  of  Copper  Ores 498,614. 51 

Profit  and  Loss 18,000.00 

To  Depreciation  of  Equipment 18 ,  000 .  00 

"Closing  to  Profit  and  Loss  the  amount  of  the 
yearly  current  and  accrued  expense  for  copper." 

While  these  closing  entries  could  be  combined  into  less  entries  than 
shown,  it  is  not  advisable  so  to  do,  as  it  would  give  a  lump  sum  in  the 
Profit  and  Loss  Account  which  would  destroy  the  value  of  this  account 
for  reference  and  for  statistical  purposes. 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       145 

The  effort  to  save  bookkeeping  by  combining  and  summarizing  should 
not  be  carried  to  the  point  where  the  entries  in  the  ledger  have  no  value 
for  reference  or  check. 

ADJUSTMENT  OF  DEPRECIATION  CHARGES 
When  the  depreciation  of  equipment  is  closed  to  profit  and  loss, 
subsidiary  credit  journal  entries  are  made  for  the  proper  depreciation 
credit  to  each  construction  and  equipment  charge  account  appearing  in 
the  cost  ledgers. 

Theoretically,  this  credit  should  be  taken  when  the  depreciation  re- 
serve is  set  up  each  month,  but  this  would  mean  twelve  entries  for  each 
year,  instead  of  one  when  handled  as  above  stated. 

When  the  depreciation  of  equipment  charge  is  adjusted  the  last 
month  of  each  year,  a  schedule  of  equipment  and  depreciation  is  made 
similar  to  the  following: 

Schedule  of  Construction  and  Equipment  and  Depreciation 
Year— 1918 


Total 

Reserved  to 
Jan.  1,  1918 

Deprecia- 
tion Year 
1918 

Total  De- 
preciation 

Net 
Equipment 

Hoist  and  Gallows  Frame 

Pump  Columns  and  Pumps 

Condenser  and  Cooling  Tank . .  . 

$137,329.31 

2,765.58 

3,281.83 

2,913.11 

2,054.92 

14,872.85 

7,327.12 

11,040.52 

50.97 

2,697.83 

487 . 22 

858.74 

48.74 

1,178.59 

591.45 

26,416.99 

11,116.51 

1,945.07 

603.98 

294,901.98 

6,883.89 

6,961.19 

187.00 

389 . 20 

5,126.92 

5.00 

17.17 

703.42 

2,596.51 

473.43 

679.35 

120.95 

658.81 

4.00 

$134,800.59 
2,765.58 
3,281.83 
2,182.68 
2,054.92 
14.872.85 
7,327.12 
9,644.54 

2,499.34 

476.72 

858.74 

48.74 

1,178.59 

591.45 

22,770.62 

3,334.96 

2,912.23 

4,804.29 

87.50 

389.20 

4,538.03 

5.00 

17.17 

703.42 

2,530.93 

473.43 

679.35 

$  1,528.72 
500.00 

1,000.00 

50.97 

198.49 

10.50 

3,000.00 

5,000.00 

1,000.00 

200.00 

18,474.50 

3,000.00 

1,346.64 

59.50 

588.84 

65.58 

120.95 
329.81 

$136,329.31 

2.765.58 

3,281.83 

2,682.68 

2,054.92 

14,872.85 

7,327.12 

10,644.54 

50.97 

2,697.83 

487.22 

858.74 

48.74 

1 , 178 . 59 

591.45 

25,770.62 

8,334.96 

1,000.00 

200.00 

18,474.50 

5,912.23 

6,150.93 

147.00 

389.20 

5,126.92 

5.00 

17.17 

703.42 

2,596.51 

473.43 

679.35 

120.95 

329.81 

$     1,000.00 
230.43 

Machine  Shop  Equipment 

Tinner  Shop  Equipment 

Blacksmith  Shop  Equipment. . .  . 

395.98 

Scaffold  Flotation  Machine 

Assay  Office  Equipment 

646  37 

2,781.55 

945.07 

403 . 98 

Lead  Mill 

276,427.48 

971.66 

810.26 

40.00 

Fire  System  (Engine,  etc.) 

Lower  Tram  Loading  Platform .  . 
Drill  Steel  Car 

329.00 

4.00 

Total 

$547,290.15 

$225,829.87 

$36,474.50 

$262,304.37 

$284,985.78 

10 


146  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

This  schedule  proves  the  amount  of  Construction  and  Equipment 
and  the  amount  of  Reserve  for  Depreciation  shown  on  the  Operating 
Statement. 

It  is  customary  with  mines  to  depreciate  their  Construction  and 
Equipment  at  a  certain  fixed  rate  based  either  upon  the  estimated  life 
of  the  mine  or  the  estimated  life  of  the  bulk  of  the  equipment  when  the 
life  of  the  mine  is  greater  than  the  life  of  the  equipment,  instead  upon  the 
estimated  life  of  each  piece  of  equipment.  However,  for  the  purpose  of 
computing  comparative  costs  a  record  should  be  kept  of  the  average 
length  of  life  of  each  piece  of  equipment. 

Frequently  the  total  value  of  the  equipment  is  depreciated  before  the 
equipment  is  discarded  or  the  mine  depleted.  In  such  cases  only  the 
new  equipment  is  depreciated,  and  the  old  equipment  still  in  use  at  the 
termination  of  operations  is  salvaged  and  the  amount  received  therefrom 
is  treated  as  income. 

CLOSING  THE  TREASURER'S  ACCOUNTS 

Having  closed  the  operating  books  and  determined  the  yearly  profit, 
and  sent  the  Treasurer  a  statement  of  the  operating  accounts,  it  is  nec- 
essary to  transfer  the  operating  profit  and  the  yearly  depletion  to  the 
Treasurer  and  to  close  the  Treasurer's  accounts  for  the  year. 

As  all  profits  are  distributed  or  reinvested  by  the  Treasurer,  it  is 
necessary,  at  the  end  of  the  year,  to  transfer  from  the  Operating  Profit 
and  Loss  the  yearly  profit.  This  is  done  by  charging  the  Operating 
Profit  and  Loss  Account  and  crediting  the  Treasurer's  Previous  Year's 
Account  with  the  amount  of  the  yearly  profit. 

The  reserve  for  depletion  set  up  each  year  also  is  transferred  to  the 
Treasurer  who  is  the  one  to  distribute  it  as  capital  dividends  or  to  reinvest 
it  in  the  purchase  of  new  properties.  This  transfer  is  made  by  charging 
Reserve  for  Depletion  and  crediting  Treasurer's  Previous  Year's  Account. 

In  order  to  clear  the  operating  books  for  the  next  year  the  amount  of 
the  advances  received  from  the  Treasurer  during  the  year  shown  by  the 
Treasurer's  Current  Year's  Account,  is  closed  to  the  Treasurer's  Account. 

The  operating  books  having  been  closed  for  the  year,  the  Treasurer's 
Account  showing  the  new  balance  would  appear,  as  follows : 

Treasurer's  Account 

Balance  January  1,  1918 $     933,611.77 

Profit  for  Year,  December  31,  1918 306,310.31 

Depletion  Reserve,  December  31,  1918 504,716.97 

Treasurer's  Current  Year,  December  31,  1918 $     730,686.58 

Balance,  December  31,  1918 1,013,952.47 

$1,744,639.05     $1,744,639.05 
Treasurer's   Previous   Year's   Balance,    January    1, 

1919 $1 ,013,952.47 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       147 
YEARLY  PROFIT  OR  LOSS 

Like  entries  must  be  made  to  profit  and  loss  for  expense  and  revenue 

from  any  other  separate  source  of  income  and  expense  the  same  as  made 

for    copper,  and    when    these  have    been    made   and  posted  they  early 

combined  Profit  and  Loss  Account  would  appear,  as  follows: 

Combined  Operating  Profit  and  Loss 

Year— 1918 

Copper  Sales  Deliveries $1 ,  670 ,  167 .  45 

Copper  Ore  and  Bullion 493 ,  839 .  88 

Gold  and  Silver  Sales  from  Copper .  182,049.69 
Gross  Value  Copper  Produc- 
tion   $2,346,057.02 

Refunds  and  Discounts $4,980. 74 

Profit  on  Supplies 141.15 

Miscellaneous  Earnings $5 ,  121 .  89 

Mill  Lead  Bullion  Sales $149,560.92 


Mill  Lead  Gold  and  Silver 

Sorted  Ore  Settlements 

81,466.33 

6,356.09 

26,011.91 

$     263, 
$1,767 

$     541 

395. 
,072 

,191 

Direct  Lead  Ore  Settlements 

Gross  Value  Lead  Production. 

Total  Operating  Income 

Total  Copper  Operating  Expense.  . 
Total  Lead  Operating  Expense .... 

$1,516,189.88 
250,882.50 

25 

$2,614,574.16 

Total  Expense 

$     504,716.97 
$       36,474.50 

.38 

Depletion    of    Cop- 
per Ores $498,614.51 

Depletion    of    Lead 

Ores :.         6,102.46 

Total  Depletion 

Depreciation  of  Cop- 
per Equipment.  .    $  18,000.00 

Depreciation  of  Lead 

Equipment 18,474.50 

Total  Depreciation 

Total  Capital  Returned 

.47 

$2,308,263.85 

At,  Piate  ner  Share  for  Year 

$     306,310.31 
0.875 

Capital    Returned   per    Share   for 

Year 144 

RULING  THE  ACCOUNTS 
Either  as  each  account  is  closed  or  after  the  books  are  closed  all 
ledger  accounts  should  be  ruled  and  balances  brought  down  so  as  to 
keep  each  year's  record  separate. 

The  proper  ruling  of  the  profit  and  loss  and  other  accounts  is  impor- 
tant as  the  ledger  and  summary  accounts  can  be  made  clear  or  confused 
depending  upon  the  method  of  ruling. 


SECTION  3 
ADMINISTRATIVE  ACCOUNTING 


148 


150 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


OPERATING  PROFIT  AND  LOSS  AND  CLOSING  ENTRIES       151 

Chart  XI 
Administrative  Accounts 

Account  No.  Account 

Disbursement  Accounts 

1  Bills  and  Salaries  Audited. 

2  Federal  Taxes  Accruing. 

3  Accrued  Interest  Unpaid. 

4  Investment  Obligations  Contracted. 

5  Depreciation  of  Equipment. 

(a)  Operating  Equipment. 

(6)  Administrative  Equipment. 

6  Depletion  of  Mine  Investment. 

7  Depletion  of  Mine  Appreciation. 

8  Accounts  Payable. 

9  Reserve  for  Federal  Taxes. 

10  Reserve  for  Accrued  Interest. 

11  Reserve  for  Investment  Payments. 

12  Reserve  for  Depreciation  of  Equipment. 

13  Reserve  for  Depletion  of  Investment. 

14  Reserve  for  Depletion  of  Appreciation. 

Expense  Accounts 

15  Administrative  Expense. 

(a)  Directors'  and  Officers'  Salaries. 

(b)  General  Office  Expense. 

(c)  Legal  and  Technical  Expense. 

(d)  Traveling. 

(e)  Advertising  and  Donations. 
(/)  Interest  and  Exchange  Paid. 

(g)  Stock  Transfers  and  Registration. 
(h)  Insurance, 
(i)  Miscellaneous. 

16  Federal  Taxes. 

(a)  Income  Taxes. 
(6)  Profits  Taxes. 

(c)  Capital  Stock  Taxes. 

(d)  Miscellaneous  Taxes. 

Prepaid  Expense  Accounts 

17  Unexpired  Insurance. 

18  Suspense. 

Asset  Accounts 

19  Mine  Property  Investment. 

(a)  Mining  Claims. 
(6)  Mine  Development, 
(c)  General  Development. 

20  General  Office  Equipment. 

21  Industrial  Stocks. 

22  Industrial  Bonds. 

23  United  States  Bonds. 

24  Accounts  Receivable. 


152  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Operating  Accounts 

25  Operating  Account  Current  Year. 

26  Operating  Account  Previous  Year. 

Receipt  Accounts 

27  Interest  Accrued  on  Bank  Deposits. 

28  Interest  Accrued  on  Industrial  Bonds. 

29  Dividends  Due  on  Industrial  Stocks. 

30  Interest  Accrued  on  Government  Bonds. 

31  Interest  Accrued  on  Loans. 

32  Administrative  Receipts. 

(a)  Interest  on  Bank  Deposits. 
(6)  Interest  on  Investments. 

(c)  Interest  on  Loans. 

(d)  Refunds  and  Discounts. 


33 

Notes  Receivable. 

34 

Receipts  from  Sales  Agent. 

35 

Operating  Sales  Settlements. 

Cash  and  General  A  ccounts 

36 

Capital  Stock  Authorized. 

37 

Capital  Stock  Unissued. 

38 

Notes  Payable. 

39 

Cash. 

40 

Dividends  from  Surplus. 

41 

Dividends  from  Depletion. 

42 

Reserve  for  Dividends  from  Surplus. 

43 

Reserve  for  Dividends  from  Depletion. 

44 

Profit  and  Loss  Account. 

45 

Earned  Surplus. 

46 

Mine  Property  Appreciation. 

47 

Property  Appreciation  Reserve. 

CHAPTER  XV 
ADMINISTRATIVE  ACCOUNTING 

The  Administrative  Accounting  is  usually  done  under  the  direction 
of  the  Treasurer,  and  consists  of  three  divisions:  First,  that  which  has  to 
do  with  the  activities  of  the  organization  from  its  inception  until  the 
mine  property  is  made  a  producer;  second,  from  the  time  that  the  prop- 
erty becomes  a  producer  until  the  dissolution  of  the  business;  and  third, 
the  dissolution  of  the  business. 

The  first  division  covers  the  promotion  and  development  of  the 
property  as  set  forth  in  Chapters  III,  IV,  and  V.  The  second  division 
has  to  do  with  the  results  of  production  operations,  as  will  be  hereinafter 
set  forth.  The  third  division  has  to  do  with  the  dissolution  of  the 
business,  the  liquidation  of  the  capital  assets,  the  distribution  to  stock- 
holders of  the  net  amount  obtained  thereform,  and  the  final  closing  of  the 
books. 

As  the  Capital  Stage  of  Administrative  Accounting  has  been  covered, 
we  will  proceed  with  the  accounting  of  the  Results  of  Production  Opera- 
tions. Administrative  Accounting  of  Mining  covers  the  same  ground 
as  Corporate  Accounting,  which  has  been  well  presented  in  published 
volumes  now  on  the  market.  Therefore,  only  that  part  of  Administrative 
or  Corporate  Accounting  as  applies  to  mining  and  the  disposal  of  the 
results  of  mining  operations  will  be  illustrated. 

CHART  OF  ADMINISTRATIVE  PRINCIPLES 

A  chart  of  principles  of  Administrative  Accounting,  as  shown  by  Chart 
Il-B,  should  first  be  drawn  to  serve  as  a  guide  and  to  insure  completeness 
and  uniformity  in  the  Administrative  Accounting. 

Chart  II-.B  covering  the  principles  of  Administrative  Accounting  com- 
bined with  Chart  II-A,  illustrating  the  principles  of  Operating  Accounting, 
results  in  a  chart  giving  all  the  principles  involved  in  Mining  Accounting, 
as  shown  by  Chart  II. 

WORKING  FACTORS 

The  principles  of  Administrative  Accounting  having  been  determined, 
it  is  next  in  order  to  establish  a  chart  of  Administrative  Accounts  in 
harmony  with  these  principles  and  that  will  properly  record  the  trans- 
actions of  the  Administrative  Department  of  the  business.  Such  a 
chart  of  accounts  is  shown  by  Chart  of  Administrative  Accounts  XI. 

153 


154  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

This  chart  includes  certain  asset  and  receipt  accounts  that  would  not 
be  used  by  small  producers  that  do  not  invest  in  the  stocks  or  bonds  of 
other  industries,  but  distribute  all  the  earnings  as  well  as  capital  returned. 
The  large  producers,  or  those  who  plan  to  continue  in  the  business,  do 
not  distribute  their  depletion  reserves  as  capital  dividends,  but  invest 
them  in  good  bonds  and  securities  until  an  opportunity  arrives  to  purchase 
new  properties  of  promise. 

Having  established  the  Chart  of  Accounts  there  should  be  drawn 
a  Schedule  of  Charges  and  Credits  to  these  accounts  to  insure  uniformity 
in  the  compiling  of  the  accounting  data.  We  will  not  illustrate  such  a 
schedule  as  most  of  the  Administrative  Accounts  are  of  such  a  nature  as 
to  indicate  the  charges  and  credits  to  be  made  thereto. 

STATEMENT  AT  BEGINNING  OF  THE  YEAR 

In  order  that  the  accounting  may  be  uniform  and  in  conformity 
with  practice  we  will  assume  that  the  condition  of  the  Administrative 
Accounts  at  the  beginning  of  the  year  is  as  shown  by  the  following 
statement: 

Administrative  Balance  Sheet  at  Beginning  of  Year 

Mine  Property  Investment $3 ,022,500.00 

General  Office  Equipment 744 .  10 

Cash 1 ,258,641 .31 

Accounts  Receivable 196 .  17 

United  States  Liberty  Bonds 400,000.00 

United  States  Liberty  Bonds  Subscription 100 ,000 .  00 

Dividends  from  Depletion 1 ,137,500.00 

Operating  Account,  Previous  Year 933 ,611 .  77 

$6,853,193.35 

Capital  Stock  Issued $3,500,000.00 

Reserve  for  Federal  Taxes 147,033.37 

Reserve  for  Bond  Subscription 100,000.00 

Reserve  for  Dividends  from  Surplus 87,500.00 

Reserve  for  Dividends  from  Depletion 87 ,  500 .  00 

Reserve  for  Depletion  of  Mine  Investment 697,983.51 

Reserve  for  Depletion  of  Mine  Appreciation 1 ,230,047.96 

Earned  Surplus 1,003,128.51 

$6,853,193.35 

We  are  now  in  position  to  account  for  the  transactions  of  the  adminis- 
trative end  of  the  business,  consisting  of  Disbursements,  Receipts, 
Cash,  etc.,  as  shown  by  Chart  ll-B,  and  Chart  of  Accounts  XI. 

In  order  to  simplify  the  presentation  of  Administrative  Accounting, 
the  total  disbursements  for  the  operating  year  will  be  treated  as  a  whole 
instead  of  on  a  monthly  basis  as  done  in  practice. 


CHAPTER  XVI 

ADMINISTRATIVE  DISBURSEMENTS 

Administrative  Disbursements  consist  of  Actual  or  Current,  Accrued 
and  Deferred,  as  shown  by  Chart  XII. 

ACTUAL  OR  CURRENT  DISBURSEMENTS 

All  of  the  Actual  or  Current  Disbursements  are  made  by  means  of 
voucher  blanks,  and  these  vouchers  are  recorded  in  the  Voucher  or 
Bills  Audited  Record,  Form  6. 

We  will  assume  that  the  total  Current  Disbursements  for  the  year 
as  shown  by  the  Bills  Audited  Record  is  $2,085,019.24.  Therefore, 
the  total  entries  for  Current  Disbursements  upon  the  Administrative 
Journal,  Form  1  for  posting  to  the  Administrative  Ledger,  Form  2 
would  be: 

Bills  and  Salaries  Audited $2,085,019.24 

To  Accounts   Payable $2,085,019.24 

Accrued  Disbursements. — As  a  rule  the  only  Accrued  Disbursements 
to  be  accounted  for  upon  the  Administrative  Books  are  the  Federal 
Taxes,  with  occasionally  Accrued  Interest  Unpaid  upon  outstanding 
obligations,  and  Investment  Obligations  Contracted  and  Unpaid.  Unless 
the  concern  is  unable  to  meet  its  interest  obligations,  the  interest  is 
paid  as  it  becomes  due,  and  only  the  Federal  Taxes  and  Investment 
Obligations  Unpaid  are  left  as  Accrued  Disbursements. 

Federal  Taxes. — Federal  Taxes  at  the  present  time  consist  of  Income 
Tax,  Profits  Tax  and  Capital  Stock  Tax.  To  determine  the  Income  and 
Profit  Taxes,  the  requirements  of  Treasury  Department  Regulations 
No.  45,  must  be  met.  To  detail  these  requirements  would  require 
the  duplicating  of  the  Treasury  Department's  Regulations,  which  is  a 
volume  in  itself.  It  is  the  duty  of  every  accountant  as  well  as  the 
officers  of  the  business  to  familiarize  themselves  with  the  Regulations 
governing  the  determination  of  taxable  income  and  the  Capital  Stock 
Tax.  To  ignore  the  requirements  of  the  Treasury  Department,  will  re- 
sult in  incurring  interest  charges  upon  any  additional  assessment  of 
taxes  as  result  of  understatement  of  income  with  fine  and  possible  penal- 
ties not  only  for  understatement  of  income,  but  for  failure  to  furnish 
certain  information. 

The  accounts  should  be  kept  to  conform  as  nearly  as  practicable 
with  the  requirements  of  Regulations  of  the  Treasury  Departments  re- 
lating to  the  federal  income  and  profits  tax  laws,  etc. 

155 


156 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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ADMINISTRATIVE  DISBURSEMENTS  157 

The  income,  in  addition  to  being  segregated  so  as  to  give  all  necessary- 
operating  information,  should  be  further  segregated  between  taxable  and 
non-taxable  income,  when  the  business  has  income  from  outside 
investments. 

The  disbursements  should  be  segregated  into  Capital  Assets,  Expense 
and  Prepaid  Expense,  as  shown,  and  any  yearly  operating  expense  and 
accrued  income  not  allowed  by  the  Treasury  Department's  Regulations 
governing  determination  of  taxable  income  should  be  so  recorded  as  to 
be  quickly  ascertained  and  added  to  the  amount  of  earnings,  in  deter- 
mining taxable  income  at  the  end  of  the  year. 

Special  provisions  in  the  Treasury  Department's  Regulations  govern- 
ing determination  of  taxable  income  of  mines  are:  the  writing  up  of  the 
value  of  the  mine  property  when  the  value  as  of  March  1,  1913,  or  the 
date  of  discovery  of  a  mine,  since  March  1,  1913,  is  in  excess  of  cost  of 
property,  in  order  to  determine  the  capital  sum  returnable  from  gross 
income  through  depreciation  and  depletion  allowance;  and  the  using  of 
realized  appreciation  of  property  value  as  of  March  1,  1913,  or  as  of  any 
subsequent  date,  as  surplus  in  computing  invested  capital. 

At  the  end  of  the  year  there  is  determined  the  amount  of  net  income 
of  the  business,  before  federal  taxes  is  deducted.  From  this  amount 
there  is  deducted  the  amount  of  non-taxable  income,  and  there  is  added 
items  of  expense  not  allowed,  and  upon  the  amount  remaining  is  figured 
the  Income  and  Profit  Taxes  for  the  year  upon  the  Internal  Revenue 
Form  No.  1120. 

When  the  amount  of  such  taxes  have  been  determined,  it  is  taken  up 
by  journal  entry,  as  follows: 
Federal  Taxes  Accruing $38,410.67 

To  Reserve  for  Federal  Taxes $38,410.67 

"Amount  of  income  and  profits  taxes  for  the  year." 

Other  Accrued  Disbursements. — When  interest  payments  are  not  met 
on  due  date,  the  amount  due  should  be  taken  up  on  the  books  as  an 
Accrued  Disbursement,  offset  by  a  reserve  credit,  or  the  charge  can  be 
made  direct  to  the  proper  expense  account,  offset  by  a  reserve  credit. 

Subscriptions  for  stocks  or  bonds  to  be  paid  for  on  installment  or  by 
periodic  payments  should  be  accounted  for  in  the  same  manner.  If  any 
part  of  the  subscription  is  not  taken  up,  it  can  be  taken  off  the  books  by  a 
reverse  entry. 

When  obligations  for  purchase  of  securities  are  contracted  it  is  best 
to  record  the  liability  upon  the  books  by  a  journal  entry  for  posting  to  the 
ledger,  as  follows : 

United  States  Liberty  Bonds  Subscription $286,428. 15 

U.  S.  4K  Per  cent  Liberty  Bonds $286 ,428 .  15 

To  Reserve  for  Bond  Payments $286,428. 15 

"Amount  of  4K  per  cent  U.  S.  Liberty  Bonds  con- 
tracted for  purchase  on  time  payments." 


158  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

As  such  obligations  are  met  by  cash  payments,  the  amount  of  the  accrued 
liability  liquidated  is  transferred  to  the  proper  asset  account.  Sometimes 
the  charge  is  made  to  the  asset  account  direct  and  not  passed  through  the 
accrued  account.  However,  this  is  wrong  in  principle.  Again,  no  entry 
is  made  upon  the  books  until  the  actual  transaction  in  cash  is  made. 
When  this  is  done  the  liability  is  not  shown  in  the  balance  sheet. 

Deferred  Disbursements. — The  Deferred  Disbursements  consist  of 
depreciation  of  Administrative  equipment  and  the  segregating  of  the 
Depletion  of  Mines  taken  up  on  the  Operating  Books  and  transferred  to 
Administrative  Books  into  Depletion  of  Mine  Investment  and  Depletion 
of  Mine  Appreciation,  when  the  depletion  charge  is  based  upon  the  value  as 
of  March  1,  1913,  or  the  discovery  value,  and  this  value  is  in  excess  of  cost. 

It  is  very  important  that  the  depletion  charge  should  be  so  divided; 
first,  in  order  to  show  the  amount  of  realized  appreciation  which  can  be 
considered  as  Surplus  and  used  as  Invested  Capital  in  determining  the 
profits  tax  as  provided  in  Article  No.  844  of  Requlations  No.  45;  second, 
in  order  that  the  true  cost  of  production  can  be  obtained.  In  some  cases 
the  amount  of  property  appreciation  as  of  March  1,  1913,  or  the  discovery 
value,  is  so  much  in  excess  of  property  investment  as  to  make  the  deple- 
tion cost  nearly  equal  the  mine  operating  cost,  and  to  show  the  property 
operating  at  a  loss  on  normal  price  of  metal. 

Appreciation  of  Property  Investment. — When  the  value  of  the  mine 
property  has  been  written  up  above  cost  for  the  purpose  of  establishing 
a  basis  for  depletion  allowance  as  set  forth  in  Articles  Nos.  202  and  203 
of  Regulations  No.  45,  the  increased  value  should  not  be  shown  as  Mine 
Property  Investment.  To  do  so  results  in  misunderstanding  or  uncer- 
tainty in  the  minds  of  those  examining  the  balance  sheet.  Such  an  entry 
covers  up  the  amount  of  the  actual  investment  in  property.  Neither 
should  the  offsetting  credit  be  shown  as  Surplus,  Paid  In  Surplus,  or 
Property  Surplus.  To  show  this  credit  in  such  manner  leads  the  stock- 
holders to  believe  that  their  company  has  a  larger  distributable  surplus 
than  is  the  case,  and  when  included  in  Surplus  makes  it  impossible  to 
ascertain  the  true  earned  surplus  from  the  balance  sheet.  Such  increased 
value  should  be  taken  up  on  the  books  by  a  journal  entry,  as  follows: 

Mine  Property  Appreciation So, 326, 515. 62 

To  Appreciation  Reserve S5, 326, 515. 62 

"Estimated  value  of  mine  property  as  of  March 

1,    1913,    in   excess    of   investment,    as   shown    by 

statements  on  file." 

By  so  taking  this  increased  value  up  on  the  ledger  and  showing  it  in 
this  manner  on  the  balance  sheet,  the  true  condition  of  the  business  is 
shown  and  confusion  and  misunderstanding  is  avoided. 

Distribution  of  Disbursements. — Having  recorded  the  disbursement 
liabilities  for  the  period  upon  the  books,  it  is  necessary  to  distribute 


ADMINISTRATIVE  DISBURSEMENTS  159 

the  current  and  accrued  liabilities  to  the  proper  Expense,  Prepaid  Expense, 
Asset  or  Capital  Accounts  and  Operating  Accounts. 

The  distribution  of  the  current  disbursements  is  kept  in  the  Bills 
Audited  Record  and  is  made  to  the  proper  accounts  regardless  of  whether 
or  not  the  current  disbursement  liabilities  have  been  met  in  full  by  cash 
payments. 

Distribution  of  Current  Disbursements.— The  distribution  of  the  cur. 
rent  disbursement  liabilities  as  shown  by  the  Bills  Audited  Record  is 
journalized  as  shown,  as  follows: 

Operating  Account,  Current  Year $1  450  q00  00 

Account,  Receivable 1 7  543  43 

D-  A.  C.  Co $17,648.48 

Reserve  for  Bond  Subscription 3g6  428. 15 

General  Office  Equipment 107.60 

Administrative  Expense . 83  801  64 

Directors'  and  Officer's  Salaries 30,000.00 

General  Office  Expense 7 ,  853 .  88 

Legal  and  Technical  Expense 5,464.51 

Traveling 1,910.00 

Advertising  and  Donations 10,965.50 

Interest  and  Exchange  Paid 2,875. 10 

Stock  Transfers  and  Registration 1 ,  735 .  40 

Miscellaneous 947 .  25 

Operating  Salaries 22,050.00 

Reserve  for  Taxes $     147 ,  033 .  37 

To  Bills  Audited $2,085,019.24 

"Distributing  the  current  or  actual  disbursements." 

This  entry  closes  out  the  Bills  Audited  Account  on  the  ledger  and 
leaves  the  amount  of  Bills  Audited  Unpaid  to  be  shown  by  the  Accounts 
Payable  Account. 

Distribution  of  Accrued  Disbursements. — The  amount  of  Accrued 
Disbursement  Liabilities  that  are  chargeable  to  the  period's  operations, 
such  as  Accrued  Interest  Unpaid  and  Accrued  Taxes  must  be  transferred 
to  the  proper  expense  accounts  at  the  end  of  each  period,  regardless  of 
whether  or  not  the  obligation  has  been  met  by  cash  payments. 

It  is  better  not  to  transfer  the  Accrued  Taxes,  which  are  usually 
taken  up  for  each  quarter,  until  finally  determined  after  the  actual 
yearly  taxable  income  has  been  determined.  When  the  actual  amount 
of  the  yearly  federal  taxes  have  been  ascertained,  a  Journal  entry  trans- 
ferring the  accrued  amount  should  be  made,  as  follows: 

Federal  Taxes $38,410.67 

Income  Taxes $0 .  00 

Capital   Stock  Tax 0 .  00 

To  Federal  Taxes  Accrued $38,410.67 

"Closing  out  the  accrued  federal  taxes  to  expense  for  the 
vear." 


160  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

However,  in  the  case  of  obligations  created  by  subscriptions  for 
stocks  or  bonds  or  other  investments,  transfers  from  the  accrued  accounts 
to  asset  accounts  are  made  only  when  the  actual  transfer  of  the  invest- 
ment securities  is  made,  as  shown  by  the  following  entry: 

U.  S.  4M  per  cent  Liberty  Bonds $386 ,428 .  15 

To  U.  S.  4K  Per  cent  Liberty  Bonds  Subscription $386 , 428 .  15 

"Amount  of  subscription  for  4^  per  cent  Liberty 

Bonds  taken  up  by  payments." 

If  a  subscription  or  contract  for  investment  securities  is  allowed  to 
become  void,  the  amount  of  the  obligation  is  written  off  the  books. 

In  practice  the  writing  up  on  the  books  of  obligations  entered  into 
for  purchase  of  securities  or  property  is  not  always  done.  However, 
the  true  condition  of  the  business  can  not  be  shown  and  the  proper 
perspective  can  not  be  obtained  from  the  Balance  Sheet  if  such  obliga- 
tions are  not  recorded  upon  the  books  and  shown  on  the  Balance  Sheet. 

DISTRIBUTION  OF  DEFERRED  DISBURSEMENTS 

The  Depreciation  of  Equipment  and  Depletion  of  Mine  Investment 
and  Mine  Appreciation  is  not  distributed  but  is  charged  to  the  Income 
Account  or  General  Profit  and  Loss  Account,  in  order  to  create  reserves 
out  of  gross  income  to  cover  the  Reserve  for  Depreciation  of  Equipment 
and  Reserve  for  Depletion  of  Mine  Investment  and  Appreciation. 

The  Reserve  for  Depreciation  of  Mine  Equipment  is  carried  on  the 
Operating  Books  to  take  care  of  purchase  of  new  equipment  when  the 
original  equipment  has  become  obsolete  or  is  worn  out,  as  explained 
under  Operating  Disbursements. 

When  the  mine  has  been  abandoned  and  it  is  desired  to  liquidate 
the  assets,  the  Depreciation  Reserve  is  transferred  to  the  Administrative 
Books  and  is  distributed  as  Capital  Dividends,  as  provided  in  Article 
No.  1549  of  Treasury  Department  Regulations  No.  45. 

The  Reserve  for  Depreciation  of  Administrative  Equipment  is  like- 
wise used  either  for  purchase  of  new  equipment  or  for  distribution  as 
Capital  Dividends. 

The  Reserve  for  Depletion  of  Mines  is  divided  into  Reserve  for  Deple- 
tion of  Investment  in  Mine  Property,  and  Reserve  for  Depletion  of 
Appreciation  of  Mine  Property  above  cost,  as  of  March  1,  1913,  or  as  of 
30  days  after  date  of  discovery.  The  reason  for  dividing  the  Deple- 
tion Reserve  is  to  obtain  the  realized  appreciation  which  may  be  used  as 
invested  capital  as  here-in-before  explained. 

The  Reserve  for  Depletion  of  Mines  is  taken  up  on  the  Operating 
Books  each  month  and  is  transferred  to  the  Administrative  Books  at  the 
end  of  the  year. 

If  new  mine  properties  are  purchased,  the  amount  of  the  Depletion 


ADMINISTRATIVE  DISBURSEMENTS  161 

Reserves  and  the  amount  of  original  property  investments  should  be 
reduced  an  amount  equal  to  the  new  investments  or  until  the  Depletion 
Reserves  have  been  exhausted.  Any  investments  in  new  mine  property 
in  excess  of  Depletion  Reserves  will  be  considered  as  made  out  of  surplus, 
unless  provided  for  by  new  capital. 

The  reduction  in  Depletion  Reserve  to  offset  purchases  of  new  prop- 
erties is  made  by  journal  entry  charging  Reserve  for  Depletion  and 
crediting  Original  Property  Account. 

Sometimes  it  is  decided  to  distribute  the  Depletion  Reserves,  espe- 
cially when  such  have  become  larger  than  what  it  is  considered  necessary 
for  reinvestment  in  new  property  to  continue  the  life  of  the  business. 
Again,  it  is  decided  to  gradually  liquidate  the  business  by  distribution  of 
the  Depletion  Reserves  as  Capital  Dividends.  When  such  distributions 
are  made,  either  from  Reserve  for  Depletion  or  Depreciations,  care  should 
be  taken  to  meet  the  requirements  of  Article  No.  1549,  and  to  credit  the 
Property  Account  and  debit  the  Reserve  for  Depletion  Account  and 
amount  equal  to  the  Capital  Dividends  disbursed. 

OPERATING  ACCOUNTS 

The  amounts  of  remittances  made  to  the  Operating  Department 
are  charged  to  the  Operating  Account,  Current  Year,  and  the  balance  of 
this  account,  after  being  credited  with  the  Operating  Sales  Settlements, 
at  the  end  of  the  year,  is  closed  into  the  Operating  Account,  Previous 
Year.  The  balance  in  this  latter  account  must  offset  the  balance  in  the 
Treasurer's  Account,  Previous  Year,  appearing  on  the  Operating  Ledger. 

DISTRIBUTION  OF  PREPAID  DISBURSEMENTS 

The  Prepaid  Administrative  Expense  usually  consists  of  Prepaid 
Insurance  and  Suspense  items  of  Advances  for  Traveling,  to  Agents, 
etc. 

Each  month  the  proportional  amount  of  insurance  is  charged  to 
Administrative  Expense,  Insurance,  and  Unexpired  Insurance  credited. 
Also,  all  Suspense  items  that  have  been  adjusted  are  charged  to  Adminis- 
trative Expense,  and  Suspense  credited. 


CHAPTER  XVII 
ADMINISTRATIVE  RECEIPTS  AND  CASH 

ADMINISTRATIVE  RECEIPTS 

The  Administrative  Receipts  consist  principally  of  interest  on  bank 
deposits,  investments  and  loans.  These  receipts  may  be  taken  upon 
the  books  as  they  become  due,  or  as  they  are  received. 

Receipts  on  an  Accrued  Basis. — For  instance  when  the  books  are 
kept  on  an  accrued  basis  in  the  case  of  interest  on  bank  deposits,  the 
account  Interest  Accrued  on  Bank  Deposits  is  debited  and  Administrative 
Receipts,  Interest  on  Bank  Deposits,  is  credited  for  the  amount  of 
interest  due.  The  debit  account  is  closed  out  by  posting  from  the 
Cash  Book  after  the  amount  of  interest  has  been  received  and  entered 
upon  the  Cash  Book. 

The  same  method  of  procedure  is  followed  in  the  case  of  interest  on 
industrial  and  government  bonds,  and  dividends  on  stocks,  and  interest 
on  loans. 

Receipts  on  a  Cash  Basis. — In  practice  only  interest  on  loans  is 
taken  up  on  the  books  as  it  becomes  due,  as  such  interest  payments  are 
not  always  paid  on  due  date.  All  other  receipts  such  as  interest  on  bonds, 
bank  deposits,  etc.,  are  usually  treated  as  Cash  Receipts,  and  the  Receipt 
Accounts  are  opened  by  postings  from  the  Cash  Book. 

Refunds  and  Discounts  are  as  a  rule  handled  on  a  cash  basis  and  not 
put  on  the  books  until  received  and  entered  on  the  Cash  Book,  when 
postings  are  made  to  the  Refund  and  Discount  Account  in  the  ledger. 
The  Accrued  Operating  Receipts  have  been  taken  up  on  the  Operating 
Books  and  therefore  all  cash  received  by  the  Treasurer  in  payment  of 
Operating  Receipts  are  treated  as  Cash  Receipts. 

Administrative  Cash. — Cash  is  the  keystone  to  any  business.  In  the 
business  of  mining  the  amount  of  original  cash  raised  as  Capital  should 
be  sufficient  to  purchase  the  property,  develop  and  equip  it  ready  for 
production  and  to  carry  production  until  cash  payments  are  received 
from  sales  to  customers. 

When  the  business  is  operating  at  a  profit  the  amount  of  cash  gradually 
increases  beyond  the  original  amount  necessary,  and  this  surplus  is 
used  to  enlarge  the  business,  to  purchase  and  develop  other  properties, 
to  purchase  the  stock  of  proven  properties,  or  is  distributed  as  dividends. 

The  amount  of  cash  available  for  use  in  the  business  is  shown  by  the 
Administrative  Cash  Book  (Form  No.  5),  in  which  all  cash  transactions 

162 


ADMINISTRATIVE  RECEIPTS  AND  CASH  163 

are  recorded.     If  money  is  kept  in  more  than  one  bank  a  separate  bank 
account  must  be  carried  in  the  ledger  for  each  bank. 

CASH  RECEIPTS 

The  Administrative  Cash  originates  from  three  sources: 

First. — Cash  put  up  as  capital  by  the  owners  of  the  business  for  stock 
or  shares. 

Second. — Cash  borrowed  upon  notes,  etc. 

Third. — Cash  received  from  the  sale  of  production. 
Of  course,  there  are  receipts  of  cash  such  as  cash  discounts,  refunds, 
and  cash  received  in  payment  of  accounts  receivable  created  by  sales 
of  operating  supplies  and  labor  or  services  of  employes  to  others.  How- 
ever, such  cash  received  is  nothing  more  than  a  repayment  of  cash  ad- 
vances and  do  not,  as  a  rule,  affect  the  amount  of  cash  used  in  the  business. 

Cash  Received  from  Sale  of  Stock  or  Shares. — The  cash  put  up  by 
the  owners  of  the  business  is  used  for  purchase  of  mine  property,  its  equip- 
ment and  development,  and  to  carry  the  expense  of  operation  until  the 
receipt  of  cash  from  sales  of  production. 

The  accounting  of  the  cash  put  into  the  business  as  Capital  from  sale 
of  stock  or  shares  has  been  illustrated  in  Chapters  II  and  III,  and  the 
amount  of  this  cash  stands  upon  the  books  as  Capital  until  the  business 
is  liquidated,  when  this  capital,  or  whatever  may  be  left  of  it,  is  returned 
to  the  owners. 

Cash  Received  from  Notes  Issued. — Occasionally  it  is  necessary  for 
the  business  to  carry  its  product  for  a  greater  period  of  time  than  usual, 
or  for  some  reason  it  is  found  necessary  to  have  more  cash  to  take  care  of 
the  business.  To  meet  such  needs  money  is  borrowed..  In  such  cases 
it  is  customary  for  the  Treasurer  to  raise  funds  upon  notes  which,  if  in 
excess  of  the  amount  of  credit  which  the  business  is  able  to  obtain,  are 
secured  by  refinery  warrants  for  unsold  metal,  by  assignment  of  accounts 
of  customers,  or  by  mortgage  upon  the  assets  of  the  business. 

When  cash  is  so  obtained,  an  entry  is  made  on  the  debit  side  of  the 
Cash  Book,  showing  by  whom  the  note  was  accepted,  due  date,  rate  of 
interest,  etc.,  and  posting  made  to  liability  account,  Notes  Payable,  in 
the  ledger.  The  full  amount  of  the  note  should  be  recorded.  If  the 
note  is  discounted  the  amount  of  the  discount  should  be  entered  on  the 
credit  side  of  the  Cash  Book  and  posted  to  the  ledger  account,  Adminis- 
trative Expense,  Interest  and  Exchange  Paid. 

Should  it  be  the  practice  of  the  business  to  issue  notes,  a  Notes 
Payable  Record  should  be  kept.     The  form  of  such  a  record  is  prac- 
tically the  same  for  all  lines  of  business. 

Cash  Received  from  Sales  of  Product. — It  is  the  usual  practice  for 
all  money  received  in  payment  of  sales  of  the  principal  product  by  the 
Sales  Department  to  be  delivered  to  the  Treasurer  who  records   the 


164 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


amount  received  from  each  sale,  whether  a  partial  or  a  complete  settle- 
ment, in  the  Administrative  Cash  Book  for  posting  to  the  credit  ledger 
account,  Receipts  from  Sales  Agent. 

At  the  end  of  each  month,  or  at  the  end  of  the  year  the  amount  of 
completed  sale  settlements  is  determined  and  balanced  with  the  Operating 
Sale  Settlement  Sheets  and  such  amount  is  credited  to  Operating  Sales 
Settlements  by  a  journal  entry,  as  follows: 
Receipts  from  Sales  Agent $2,180,686.78 

To  Operating  Sales  Settlements $2 ,  180 ,  686 .  78 

"Crediting  the  Operating  Department  with  the 
amount  of  completed  sales  settlements  of  sold 
product." 

If  any  balance  is  left  in  the  account,  Receipts  from  Sales  Agent,  it 
should  be  equal  to  the  partial  payments  made  on  account,  as  shown  by 
Sales  Agents  reports  of  partial  payments  received  and  transmitted  to 
the  Treasurer. 

To  offset  the  credit  given  the  Operating  Department  upon  the  Admin- 
istrative Books  for  Operating  Sales  Settlements,  a  charge  is  made  to 
Treasurer,  Current  Year,  upon  the  Operating  Books,  as  shown  in  Operat- 
ing Cash,  under  "Receipts  From  Sale  of  Principal  Products." 

If  the  remittances  in  payment  of  sales  of  secondary  and  by-products 
are  made  to  the  Treasurer,  instead  of  to  the  Operating  Department,  they 
are  handled  in  the  same  manner,  except  that  subsidiary  accounts  for 
Sale  Settlements  of  Principal  Products,  of  Secondary  Products,  and  of 
By-products  should  be  carried  to  support  the  Operating  Sales  Settlements 
Account. 

POSTINGS  OF  CASH  BOOK  DEBITS 

At  the  end  of  each  month  the  Cash  Book  should  be  totalled,  balanced 
and  closed.  When  the  volume  of  business  is  large  it  is  best  to  have  a 
ruled  column  in  the  Cash  Book  for  each  class  of  active  receipts,  and  one  for 
sundries.     This  allows  a  debit  summary  to  be  made  quickly,  as  follows : 


Folio 

Amount 

Debit 

Credit 

Cash 

12 
98 
102 
104 
106 
108 

$2,234,509.62 

Receipts  from  Sales  Agent 

$2  180  686  78 

Interest  on  Bank  Deposits 

23  051  55 

Interest  on  Investments 

30,457  12 

Accounts  Receivable 

0  00 

Reserve  for  Dividends  Unclaimed. . . 

118.00 

Cash  on  Hand  January  1,  1917 

$2,234,313.25 

1,258,641.31 

$3,492,954  56 

ADMINISTRATIVE  RECEIPTS  AND  CASH  165 

Only  the  totals  as  shown  should  be  posted  to  the  General  Ledger  ac- 
counts, which  saves  posting  and  prolongs  the  life  of  the  General  Ledger. 
The  individual  entries  in  the  Cash  Book  of  "Receipts  from  Sales  Agent" 
will  be  supported  by  the  Record  of  Sales  Settlements  and  need  not  be 
posted  unless  it  is  desired  to  carry  subsidiary  ledger  accounts  for  each  sale. 
The  individual  entries  of  Interest  on  Bank  Deposits,  and  Interest  on 
Investments  will  be  supported  by  the  Record  of  Interest  Received, 
although  separate  subsidiary  ledger  accounts  may  be  carried  for  each 
source  of  interest  and  individual  postings  made  thereto  if  desired. 

The  individual  items  of  accounts  receivable  are  posted  direct  to  the 
individual  accounts  in  the  subsidiary  ledger,  and  the  total  to  the  General 
Ledger  Account. 

The  General  Ledger  should  be  bound,  while  the  subsidiary  ledger  may 
be  loose  leaf. 

CASH  DISBURSEMENTS 

Administrative  Cash  Disbursements  are  made  to  liquidate  the  ac- 
counts payable  liabilities,  as  shown  by  the  Bills  Audited  Record  and 
the  dividend  liabilities  created  by  dividends  declared.  All  cash  disburse- 
ments are  made  by  cheque,  unless  a  petty  cash  account  is  carried  for  small 
disbursements  to  be  made  in  cash. 

Cash  Disbursements  for  Bills  Audited. — It  is  the  usual  practice  to 
make  all  Administrative  Disbursements  except  for  dividends  by  vouchers 
and  to  record  all  disbursements  in  the  Bills  Audited,  or  Voucher  Record 
(Form  No.  6).  At  the  end  of  each  month,  or  as  occasion  requires, 
cheques  are  drawn  in  payments  of  each  voucher  and  the  number  of  each 
cheque  is  listed  in  the  Voucher  Record,  which  also  serves  as  a  Cheque 
Register. 

To  avoid  duplication,  only  the  total  amount  of  cheques  issued  against 
vouchers  audited  is  entered  on  the  credit  side  of  the  Cash  Book  with 
proper  explanation  at  the  end  of  each  month.  It  is  best  to  have  on  the 
credit  side  of  the  Cash  Book  a  ruled  column  each  for  "Bills  Audited," 
"Dividends,"  and  "Sundries."  This  enables  a  summary  to  be  obtained 
quickly  and  makes  a  record  that  is  easily  analyzed.  If  desired  a  separate 
column  can  be  provided  for  advances  to  operations,  especially  when  opera- 
tions are  carried  on  at  more  than  one  place. 

Cash  Disbursements  for  Dividends. — Dividends  that  have  been  de- 
clared are  specified  either  as  Earned  Dividends  or  Capital  Dividends  and 
an  entry  is  made  on  the  books  as  of  date  of  declaration  creating  a  Reserve 
for  Dividend  from  Surplus  No.  127,  or  Reserve  for  Dividend  from  Deple- 
tion No.  128.  In  order  to  provide  the  funds  with  which  to  pay  to  each 
individual  stockholder  the  amount  of  dividend  due  on  the  stock  in  his 
name,  a  cheque  in  favor  of  the  bank  on  which  the  dividend  cheques  have 
been  drawn  is  made  and  deposited  to  the  credit  of  Dividend  No.        ,  on 


166 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


the  date  the  dividend  is  due  and  payable.  The  amount  of  this  cheque  is 
entered  on  the  credit  side  of  the  Administrative  Cash  Book  with  proper 
explanation  and  a  debit  posting  to  "Reserve  for  Dividend  No.  ," 
is  made  to  the  proper  subsidiary  ledger  account. 

Special  Dividend  Cheques  are  drawn  against  the  Dividend  Account  in 
favor  of  each  stockholder.  These  cheques  are  entered  in  a  Dividend 
Cheque  Register  before  they  are  mailed  to  the  individual  stockholders  in 
order  to  provide  a  record  for  use  in  reconcilement  of  each  dividend  account 
with  the  bank. 

Posting  of  Cash  Book  Credits. — The  Cash  Book  is  balanced  and  closed 
at  the  end  of  each  month,  and  a  summary  of  the  credits  is  made  in  like 
manner  as  of  the  debits,  as  follows: 


Account 

Folio 

Amount 

Debit 

Credit 

Accounts  Payable,  Bills  Audited 

Reserve  for  Dividends  from  Surplus 

Reserve  for  Dividends  from  Depletion. . . 
Cash 

15 
127 

128 
12 

$2,085,019.24 
350,000.00 
350,000.00 

Cash  on  Hand  December  31,  1918.  . 

$2,78o,019.24 

707,935.32 

$3,492,954.56 

Only  the  totals  as  shown  are  posted  to  the  General  Ledger  Accounts. 
The  individual  entries  on  the  credit  side  may  be  posted  to  subsidiary 
ledger  accounts,  or  simply  be  supported  by  separate  records  of  Bills 
Audited,  Dividends,  etc. 

Reconcilement  of  Cash  Account. — At  the  end  of  each  month  the  bank 
statement  or  statements,  and  cancelled  cheques  of  the  Treasurer's  Account 
are  checked  against  the  Cash  Book  Record  of  cash  received  and  dis- 
bursed, and  the  amount  of  outstanding  cheques  if  any,  ascertained  and 
recorded.  Also,  any  discrepancy  that  is  found  is  immediately  adjusted, 
and  a  Reconcilement  Statement  is  made  up  similar  to  Form  44. 

At  the  same  time  a  reconcilement  is  made  up  for  each  of  the  dividend 
accounts  as  long  as  any  dividend  cheques  are  outstanding.  If  a  dividend 
cheque  is  not  cashed  within  a  reasonable  time,  the  matter  should  be 
called  to  the  attention  of  the  stockholder  and  arrangements  made  to 
close  the  account. 

It  is  very  seldom  that  a  cheque  issued  by  the  Treasurer  is  not  presented 
for  payment.  However,  should  a  treasurer's  cheque  still  be  outstanding 
after  four  years  from  date  of  issue,  and  the  person  to  whom  the  cheque  was 
issued  cannot  be  located,  it  is  best  to  clear  the  records  by  a  charge  to 
Cash  for  the  amount  of  the  cheque  and  credit  Refunds  and  Discounts. 


ADMINISTRATIVE  RECEIPTS  AND  CASH  167 

When  dividend  cheques  have  been  returned  and  the  stockholder  can- 
not be  located,  they  may  be  taken  up  in  the  Administrative  Cash  and 
the  amount  credited  to  Reserve  for  Dividends  Unclaimed  and  so  shown 
on  the  Balance  Sheet. 

NOTES  RECEIVABLE 

It  is  not  customary  to  accept  notes  from  customers  in  lieu  of  cash 
payments.  However,  occasionally  a  customer  becomes  temporarily 
financially  unable  to  meet  his  obligations,  and  an  interest  bearing  note  is 
accepted.  When  this  is  done  a  journal  entry  is  made  debiting  Notes 
Receivable,  and  crediting  Operating  Sales  Settlements.  Upon  the 
Operating  Books  an  entry  is  made  the  same  as  if  the  payment  had  been 
made  in  cash. 


CHAPTER  XVIII 

DIVIDENDS 

The  dividend  distributions  made  by  mines  consist  of  three  kinds,  as 
follows : 

1.  Cash  Dividends  from  Earnings, 

2.  Stock  Dividends  from  Earnings, 

3.  Capital  Dividends. 

The  present  practice  of  mining  companies  is  to  deduct  from  gross 
income  the  total  amount  of  production  expense  including  taxes  and 
depreciation  of  equipment,  and  to  divide  the  remaining  amount  of  income 
into  net  earnings  and  reserve  for  depletion.  Any  dividends  made  from 
the  net  earnings  are  known  as  Dividends  from  Earnings,  and  any  divi- 
dends from  Depletion  Reserves  are  known  as  Capital  Dividends. 

Under  the  present  federal  tax  laws  and  Treasury  Department's 
Regulations  No.  45,  "a  dividend  means  any  distribution  made  by  a 
corporation,  other  than  a  personal  serivce  corporation,  to  its  stock- 
holders or  members,  whether  in  cash  or  in  other  property  or  in  stock 
of  the  corporation  out  of  its  earnings  or  profits  accumulated  since  Feb- 
ruary 28,  1913." 

While  under  the  federal  tax  laws  capital  distributions  out  of  Depletion 
Reserves  are  not  recognized  as  dividends  subject  to  tax,  nevertheless 
they  will  be  considered  as  made  from  earnings  or  profits  and  be  taxable 
unless  all  earnings  and  profits  have  first  been  distributed.  Also  any 
undistributed  earnings  or  profits  accumulated  prior  to  March  1,  1913, 
may  be  distributed  in  stock  dividends  or  otherwise  exempt  from  federal 
tax,  provided  the  earnings  and  profits  accumulated  since  February 
28,  1913,  have  been  distributed. 

Cash  Dividends  from  Earnings. — The  usual  dividends  distributed  by 
mining  companies  consist  of  cash  dividends  paid  from  earnings  of  the 
current  year,  or  from  surplus  and  undivided  profits  on  hand  at  end  of 
the  preceding  year. 

It  is  customary  to  declare  a  dividend  approximately  30  days  prior  to 
date  of  payment  and  to  specify  the  date  on  which  the  stock  records  will  be 
closed  in  order  to  allow  time  for  transfers  of  stock,  and  to  make  and 
distribute  dividend  cheques. 

A  statement  is  made  up  and  furnished  the  directors  at  each  meeting 
showing  the  amount  of  actual  or  estimated  earnings  undistributed  for 
the  current  year,  the  net  cash  available  for  dividends;  the  surplus  and 

168 


DIVIDENDS  169 

undivided  profits  the  beginning  of  the  year;  etc.,  for  use  in  making 
dividend  decision. 

Upon  the  declaration  of  a  dividend  by  the  directors,  a  journal  entry 
is  made  for  posting  to  the  General  Ledger,  as  follows : 

Dividends  from  Surplus $262,500.00 

To  Reserve  for  Dividend  from  Surplus $262  500  00 

"Dividend  No.  25  of  75  cts.  per  share,  declared 
September  20,  1918,  to  stockholders  of  record  of  Sep- 
tember 30,  1918,  payable  October  19,  1918." 

Sometimes  a  dividend  is  declared  at  the  end  of  one  year,  payable  in 
the  first  month  of  the  next  year,  as 
Dividend  from  Surplus $175 ,000 .  00 

To  Reserve  for  Dividend  from  Surplus $175  000.00 

"Dividend  No.  26  of  50  cts.  per  share  declared 
December  20,  1918,  to  stockholders  of  record  of  Decem- 
ber 31,  1918,  payable  January  20,  1919." 

In  such  cases  the  amount  of  the  reserve  to  cover  the  dividend  is  shown 
on  the  Balance  Sheet  at  the  end  of  the  year  as  Reserve  for  Dividend  from 
Surplus  No.  26. 

The  account  Dividend  from  Surplus  is  closed  into  the  Surplus  Account 
at  the  end  of  each  fiscal  year,  while  the  account  Reserve  for  Dividend 
from  Surplus  is  closed  by  posting  from  entry  in  the  Cash  Book  made  at 
the  time  a  check  is  drawn  for  the  amount  of  the  dividend  as  explained 
under  "Cash  Disbursements  for  Dividends." 

STOCK  DIVIDENDS  FROM  EARNINGS 

When  it  is  desired  to  keep  an  unusual  amount  of  earnings  in  the  busi- 
ness for  new  equipment  or  expansion  of  operations,  etc.,  it  is  occasionally 
decided  to  declare  a  stock  dividend.  This  saves  the  distributing  of  the 
earnings  and  later  the  issuing  of  additional  stock  or  bonds  to  furnish  the 
funds  required. 

The  issuing  of  stock  dividends  by  a  concern  that  is  making  large 
earnings  is  a  very  simple  method  of  raising  capital  and  in  addition  furnishes 
the  stockholders  with  certificates  representing  the  amount  of  earnings 
absorbed  by  the  business.  These  certificates  of  shares  can  be  sold 
by  the  stockholder  if  he  desires  to  convert  his  stock  dividend  into  cash. 
This  could  not  be  done  by  the  stockholder  if  no  stock  dividend  were 
issued  for  the  amount  of  the  surplus  and  undivided  profits  that  have 
been  absorbed  into  the  business. 

When  a  stock  dividend  is  declared  the  amount  of  the  surplus  that 
has  been  capitalized  is  transferred  to  the  Capital  Stock  Account  by  a 
journal  entry  debiting  Surplus  and  crediting  Capital  Stock. 

Stock  dividends  do  not  reduce  the  amount  of  the  Invested  Capital, 
which  is  an  advantage  when  the  earnings  are  sufficient  to  require  the 


170  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

payment  of  an  excess  profit  tax.  Neither  are  such  dividends  taxable  to 
the  stockholder  until  sold  by  him. 

Dividends  from  Assets. — During  the  war  some  of  the  larger  mining 
companies  invested  heavily  in  Liberty  Bonds,  which  have  since  depre- 
ciated in  value.  In  some  cases  instead  of  liquidating  these  bonds  and 
paying  cash  dividends,  the  bonds  have  been  distributed  pro-rata  to  the 
stockholders.  When  this  is  done,  the  account  representing  the  security 
distributed  is  credited  and  Surplus  is  debited  for  the  amount  of  the  dis- 
tribution. 

Capital  Dividends. — In  mining,  a  Capital  Dividend  is  either  a  distri- 
bution to  the  stockholder  in  liquidation  of  the  assets  and  business  of  a 
corporation  upon  surrender  of  his  interest  in  the  corporation,  and  closing 
up  of  the  business,  or  is  a  dividend  paid  out  of  Depletion  Reserves  as  these 
are  accumulated. 

A  Capital  Dividend  is  not  taxable  income  provided,  in  the  case  of 
dividends  out  of  Depletion  or  Depreciation  Reserve,  that  the  surplus 
and  undivided  profits  first  have  been  distributed. 

However,  as  a  Capital  Dividend  decreases  the  amount  of  the  invested 
capital  for  use  in  determining  the  excess  profits  tax,  such  dividends  are 
not  disbursed  unless  the  invested  capital  can  be  decreased  without 
increasing  the  federal  taxes. 

When  such  dividends  are  declared,  a  journal  entry  for  posting  to  the 
General  Ledger  is  made,  as  follows: 

Capital  Dividends  from  Depletion $262 ,  500 .  00 

To  Reserve  for  Dividend  from  Depletion $262 ,  500 .  00 

"Capital  Dividend  No.  8,  of  75  cts.  per  share  de- 
clared September  20,  1918,  to  stockholders  of  record  of 
September  30,  1918,  payable  October  19,  1918." 

The  dividend  from  Depletion  account  is  closed  either  into  the  Prop- 
erty Appreciation  Reserve,  or  the  Capital  Stock  Account,  depending 
upon  whether  paid  out  of  depletion  of  investment  or  depletion  of  appreci- 
ation. Therefore,  this  is  another  reason  for  the  segregating  of  Depletion 
Reserve  into  Depletion  of  Investment  and  Depletion  of  Appreciation. 

When  the  Depletion  Reserve  is  so  divided  and  Capital  Dividends 
are  declared  and  paid,  they  can  be  declared  first  as  paid  out  of  realized 
appreciation,  as  shown  by  the  Reserve  for  Depletion  of  Appreciation. 
The  Capital  Dividends  then  can  be  charged  to  Property  Appreciation 
Reserve  until  all  of  the  Property  Appreciation  Reserve  has  been  realized 
and  liquidated.  This  leaves  the  original  invested  capital  intact  for 
reinvestment  in  new  properties,  or  to  be  distributed  to  stockholders 
upon  liquidation  of  the  business. 

When  a  Capital  Dividend  is  declared  and  paid  out  of  realized  appreci- 
ation, the  amount  of  the  account  Capital  Dividends  from  Depletion 
is  closed  at  the  end  of  the  year  by  a  journal  entry,  as  follows: 


DIVIDENDS  171 

Property  Appreciation  Reserve $1 ,400,000.00 

To  Capital  Dividends $1,400,000.00 

"Reduction  of  Property  Appreciation  equal  to 

the  Amount  of  Capital  Dividends  declared  during 

the  year." 

The  account  Reserve  for  Dividends  from  Depletion  is  closed  upon 
payment  of  the  dividend  by  posting  from  the  Cash  Book,  as  in  the  case 
of  Cash  Dividends  from  Earnings. 

Reducing  the  Depletion  Reserve. — As  such  Capital  Dividends  are 
paid  out  of  Depletion  Reserves,  and  as  the  dividends  were  declared  as 
paid  out  of  Reserve  for  Depletion  of  Appreciation,  it  is  necessary  to 
reduce  the  Depletion  Reserve  by  journal  entry,  as  follows: 

Reserve  for  Depletion  of  Mine  Appreciation $1,400,000.00 

To  Mine  Property  Appreciation $1 ,400 ,000 .  00 

"Reducing  the   Reserve  for  Depletion  of  Mine 

Appreciation  and  Mine  Property  Appreciation  an 

amount  equal  to  Capital  Dividends  distributed." 

It  is  necessary  to  reduce  these  accounts  an  amount  equal  to  Capital 
Dividends  disbursed  until  all  of  the  Property  Appreciation  has  been 
realized  and  distributed.  If  any  further  Capital  Dividends  are  paid 
out  of  Reserve  for  Depletion  of  Investment,  then  the  Reserve  for  Deple- 
tion of  Investment  and  Mine  Property  Investment  accounts  will  have 
to  be  reduced  a  like  amount.  The  Capital  Dividends  Account  covering 
such  further  disbursements  will  be  a  charge  against  the  Capital  Stock 
Account. 

Until  the  present  Excess  Profit  Tax  is  repealed,  no  Capital  Dividends 
should  be  paid  unless  the  earnings  on  the  reamining  invested  capital  on 
normal  prices  and  production  will  be  less  than  8  per  cent.  Otherwise 
the  business  will  be  forced  to  pay  an  Excess  Profits  Tax  as  a  result  of 
having  disbursed  part  of  its  invested  capital. 


CHAPTER  XIX 

ADMINISTRATIVE  BALANCE  SHEET 

A  statement  is  taken  from  the  Administration  Ledger  after  posting 
all  entries  that  have  been  made  prior  to  the  determination  of  the  Yearly 
Income  or  Profit  and  Loss,  and  the  balancing  of  the  Surplus  Account. 

ADMINISTRATIVE  TRIAL  BALANCE 

This  is  obtained  by  compiling  the  balances  upon  the  Administrative 
Ledger,  which  will  give  a  statement,  as  follows : 

Administrative  Trial  Balance  Before  Absorbing  Operating  Results 

Debits 

Administrative  Expense $         83 ,  801 .  64 

Federal  Taxes 38,410.67 

Cash 707,935.32 

Accounts  Receivable 17 ,  844 .  65 

United  States  Liberty  Bonds 786 ,428 .  15 

Dividends  from  Surplus 437,500.00 

Reserve  for  Depletion  of  Mine  Appreciation 169,952.04 

Mine  Property  Investment 3,022,500.00 

Mine  Property  Appreciation 3 ,  926 ,  515 .  62 

General  Office  Equipment 851 .  70 

Operating  Account,  Current  Year 1 ,450,000.00 

Operating  Account,  Previous  Year 933 ,611 .  77 

$11,575,351.56 
Credits 

Interest  on  Investments $         30 ,457 .  12 

Interests  on  Bank  Deposits 23 ,051 .  55 

Reserve  for  Unclaimed  Dividends 118.00 

Reserve  for  Federal  Taxes 38,410.67 

Reserve  for  Dividends  from  Surplus 175,000.00 

Reserve  for  Depletion  of  Mine  Investment 697,983.51 

Appreciation  Reserve 3 ,  926 ,  515 .  62 

Capital  Stock  Issued 3,500,000.00 

Earned  Surplus 1 ,003 ,  128 .  31 

Operating  Sales  Settlements 2,180,686.78 

Receipts  from  Sales  Agent 0 .  00 

$11,575,351.56 

This  statement  is  taken  to  ascertain  that  the  ledger  is  in  balance  and 
that  all  administrative  transactions  prior  to  determining  profit  and  loss 
have  been  recorded.  This  statement  shows  the  Reserve  for  Depletion 
of  Appreciation  as  a  debit,  due  to  the  fact  that  the  Current  Year's 
Reserve  has  not  been  transferred  from  the  Operating  Books. 

172 


ADMINISTRATIVE  BALANCE  SHEET  173 

Before  the  Income  can  be  determined  the  results  of  operations  must 
be  taken  up  on  the  Administrative  Books. 

CLOSING  THE  OPERATING  ACCOUNT 

In  order  that  the  results  of  operations  may  be  taken  up  on  the  Admin- 
istrative Books  and  the  operating  accounts  closed  out,  the  statement  of 
accounts  furnished  by  the  Operating  Department  is  entered  in  the 
journal  for  posting  to  the  Administrative  General  Ledger,  as  follows: 

Statement  of  Operating  Accounts  Before  Closing  Operating  Books 

For  Year  1918 

Debits 
Total  Operating  Expense: 

Copper $1,516,189.88 

Lead 250,882.50     $1,767,072.38 

Depreciation  of  Equipment: 

Mine 18,000.00 

Mill 18,474.50            36,474.50 

Depletion: 

Of  Copper  Ores 498,614.51 

High-grade  Lead 6,102.46          504,716.97 

Cash  at  Mine 52 ,  383 .  78 

Accounts  Receivable,  Mine 5 ,  736 .  57 

Ores  on  Hand  at  Cost 4,466.46 

Unsold  Metal  in  Transit  at  17.643  cts 489,373.42 

Sold  Metal  due  for  Shipment 212,920.07 

Due  for  Gold  and  Silver  Sold 23 ,467 .  54 

Lead  Ore  Production  at  Cost .^ 4,536.91 

Lead  Ore  in  Process  at  Cost 863 .  73 

Lead  Concentrates  at  Cost 53,874.04 

Materials  and  Supplies 139 ,521 .  88 

Suspense 8,735.91 

Construction  and  Equipment 547,462.23 

Treasurer,  Current  Year '     730,686.78 

$4,582,293.17 
Credits 
Gross  Value  Production 

Copper                  $2,346,057.02 

Lead 263,395.25     $2,609,452.47 

Miscellaneous  Operating  Earnings 5,121 .89 

Current  Accounts  Payable 100,124.61 

Bullion  Freight  and  Refining  Not  Due .... , 45 ,  868 .  38 

Selling  Expense  Not  Due 15,713.31 

Reserve  for  Taxes 36,760.58 

Reserve  for  Accidents 68,618.82 

Reserve  for  Depreciation  of  Equipment 262  -304 .  37 

Reserve  for  Depletion ^rn'w 

Treasurer,  Previous  Year 933,611.77 

$4,582,293.17 


174  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

All  the  items  on  this  statement  having  been  posted,  it  is  necessary 
to  close  the  Operating  and  Treasurer's  Accounts.  To  do  this,  the 
Operating  Account,  Current  Year,  is  credited  with  the  amount  of  the 
Operating  Sales  Settlements.  This  will  leave  a  credit  balance  in 
the  Operating  Account,  Current  Year  of  $730,686.78  and  offsets  the  debit 
balance  in  the  Operating  Treasurer's  Account,  Current  Year,  for  like 
amount.     These  latter  accounts  are  then  closed  by  entry,  as  follows: 

Operating  Account,  Current  Year $730,686.78 

To  Treasurer,  Current  Year $730,686. 78 

"Closing  out  the  connecting  accounts  between  the 

Operating  and  Administrative  Books,  for  the  Current  Year." 

A  similar  entry  is  made  to  close  out  the  Operating  Account  and 
Treasurer's  Account  for  the  previous  year. 

REALIZED  APPRECIATION 

As  the  depletion  taken  up  on  the  Operating  Books  and  transferred 
to  the  Administrative  Books  is  for  the  total  amount,  it  is  necessary  to 
divide  this  into  Depletion  of  Investment  and  of  Appreciation,  by  journal 
entries,  as  follows: 

Depletion  of  Mine  Investment $182,717.08 

Depletion  of  Mine  Appreciation 321 ,999. 89 

To  Depletion $504 ,716 .  97 

"Proportioning  the  amount  of  depletion  applicable 
to  investment  and  to  appreciation  of  property  value." 

The  Reserve  for  Depletion  is  also  divided  in  like  manner  in  order  to  deter- 
mine the  realized  appreciation. 

Reserve  for  Depletion $504,716.97 

To  Reserve  for  Depletion  of  Investment $182,717.08 

Reserve  for  Depletion  of  Appreciation 321 ,999 .  89 

"Dividing   the    Yearly    Depletion    Reserve    between 

Investment  and  Appreciation." 

The  Depletion  Charge  could  be  divided  when  it  is  taken  up  on  the 
Operating  Books  each  month,  but  as  it  is  desired  only  to  ascertain  each 
month  what  amount  of  earnings  is  available  for  dividends,  the  complete 
charge  serves  the  purpose  and  saves  bookkeeping. 

As  the  recent  requirement  of  the  Regulations  of  the  Treasury  Depart- 
ment relating  to  Return  of  Income,  is  that  Depletion  can  be  taken  only 
on  production  as  sold,  the  depletion  should  be  so  charged,  or  an  adjust- 
ment will  have  to  be  made  when  return  of  income  is  filed. 

ADMINISTRATIVE  BALANCE  SHEET  BEFORE  CLOSING 

In  order  to  ascertain  that  the  ledger  is  in  balance  and  to  obtain  a 
statement  for  use  in  closing  the  books  for  the  year,  another  statement  of 
balances  is  taken  from  the  ledger,  as  follows: 


ADMINISTRATIVE  BALANCE  SHEET  175 

Administrative  Balance  Sheet  Before  Closing  for  the  Year  1918 

Debits 

Total  Operating  Expense «  j  767  072  „„ 

Total  Administrative  Expense '  qq 'oqi   a* 

Depreciation  of  Equipment oc \"ia   kh 

Depletion  of  Mine  Investment 182  717  08 

Depletion  of  Mine  Appreciation 321  999  89 

Federal  Taxes 38  410  07 

Dividends  from  Surplus 437  500  00 

Cash 

Mine " $  52,383.78 

Treasurer J707,935.32             760,319. 10 

Accounts  Receivable 

Mine %     5,736.57 

Treasurer 17,844.65               23,581 .22 

Ores  on  Hand  at  Cost 4  455  45 

Unsold  Metal  In  Transit  at  17.643  cts 4gg  373  42 

Sold  Metal  Due  for  Shipment 212  920  07 

Due  for  Gold  and  Silver  Sold 23  467  54 

Lead  Ore  Production  at  Cost 4  535  gj 

Lead  Ore  In  process  at  Cost 863  73 

Lead  Concentrates  at  Cost 53  374  94 

Materials  and  Supplies 139  521  88 

Suspense 8,735.91 

United  States  Liberty  Bonds 786  428. 15 

Mine  Property  Investment 3,022,500.00 

Mine  Property  Appreciation 3,926,515.62 

Construction  and  Equipment 

Mine $547,462.23 

General 851 . 70  548,313.93 

$12,873,394  14 
Credits 

Gross  Value  Production $  2,609,452.47 

Miscellaneous  Operating  Earnings 5 ,  121 .  89 

Interest  on  Investments 30,457.12 

Interest  on  Bank  Deposits 23,051 .55 

Current  Accounts  Payable 100 ,  124 .  61 

Bullion  Freight  and  Refining  Not  Due 45,868.38 

Selling  Expense  Not  Due 15,713.31 

Reserve  for  Taxes 

Operating $  36 ,  760 .  58 

Federal 38,410.67               75,171.25 

Reserve  for  Accidents 68,618.82 

Reserve  for  Unclaimed  Dividends 118.00 

Reserve  for  Dividend  from  Surplus 175,000.00 

Reserve  for  Depletion  of  Mine  Investment 880,700.59 

Reserve  for  Depletion  of  Mine  Appreciation 152,047.85 

Reserve  for  Depreciation  of  Equipment 262,304.37 

Appreciation  Reserve 3,926,515.62 

Capital  Stock  Issued 3,500,000.00 

Earned  Surplus 1,003,128.31 

$12,873,394.14 


176  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

This  statement  shows  the  total  expense  and  revenue  and  dividends 
paid  from  Surplus  for  the  year,  as  well  as  the  assets  and  liabilities,  etc., 
and  gives  all  the  information  necessary  for  making  up  the  Income  or 
Profit  and  Loss  Account  and  the  determining  of  the  Earned  Surplus  at 
the  end  of  the  year. 


CHAPTER  XX 

YEARLY  INCOME  OR  PROFIT  AND  LOSS  AND  SURPLUS 

PROFIT  AND  LOSS 

The  method  of  determining  income  from  mines  has  gone  through  a 
process  of  evolution  during  the  past  five  years,  due  principally  to  the 
requirements  of  recent  federal  and  state  tax  laws  and  the  development  of 
accounting  and  costing  procedure. 

Prior  to  the  enactment  of  the  present  federal  income  and  war  profits 
tax  laws  of  October  3,  1917,  the  income  of  mines  in  excess  of  the  total 
production  expense,  and  a  nominal  deduction  for  depreciation  of  equip- 
ment was  considered  net  income,  or  net  earnings,  and  was  distributed 
as  dividends  earned  either  in  cash  or  stock.  While  it  was  realized  that 
a  portion  of  the  earnings  so  determined  represented  a  liquidation  of  the 
investment  in  the  mine  property  as  a  result  of  the  depletion  of  ores, 
nevertheless  as  the  tax  laws  did  not  recognize  such  a  deduction  prior  to 
September  8,  1916,  very  few,  if  any,  of  the  metal  mines  set  up  on  their 
books  a  reserve  for  depletion  of  mines  by  a  charge  against  gross  income. 
Therefore,  all  the  net  returns  were  considered  net  income  or  net  earnings 
and  so  distributed  or  carried  as  Surplus  and  Undivided  Profits. 

This  did  not  result  in  any  loss  due  to  tax  assessments  either  to  the 
business  or  its  stockholders  until  the  enactment  of  the  Special  Excise 
Tax  on  Corporations  of  August  5,  1909,  fixing  a  tax  of  1  per  cent  on  net 
income  over  $5,000.  However,  this  law  did  not  recognize  depletion 
as  a  deduction  from  gross  income.  The  Federal  Income  Tax  Law  of 
October  3,  1913,  assessed  a  tax  of  1  per  cent  on  total  net  income,  but 
did  not  recognize  depletion  as  an  allowable  deduction  in  determining 
net  income.  As  the  tax  was  small  and  the  determination  of  depletion 
deduction  was  difficult,  nothing  was  done  to  cure  the  defect  in  the  law. 

However,  the  passage  of  the  Income  Tax  Law  of  September  8,  1916, 
as  amended  by  Act  of  October  3,  1917,  levied  a  2  per  cent  income  tax 
on  total  net  income,  and  an  additional  4  per  cent  war  tax,  and  provided, 
"in  the  case  of  mines  a  reasonable  allowance  for  depletion"  to  be  made 
under  rules  and  regulations  to  be  prescribed  by  the  Secretary  of  the 
Treasury.  The  mines  then  realized  that  to  prevent  payment  of  unneces- 
sary  taxes  on  income  from  operations  and  to  protect  stockholders  from 
paying  taxes  upon  distribution  of  liquidated  capital,  that  the  proper 
charge  for  depletion  must  be  determined  and  deducted  from  gross 
income. 

t2  177 


178  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

However,  the  wording  of  the  clause  in  the  1917  Law  covering  the 
depletion  allowance  was  ambiguous  and  the  Treasury  Department's 
rulings  in  regard  thereto  were  uncertain,  and  the  matter  of  determining 
depletion  was  not  satisfactorily  settled  until  the  passage  of  the  Revenue 
Act  of  1918,  and  the  issuance  of  Treasury  Department's  Regulations 
No.  45. 

At  the  present  time  all  mines  whose  operations  result  in  net  income 
determine  their  depletion  and  set  up  a  reserve  for  depletion  by  a  charge 
against  gross  income. 

Accounting  of  mining  operations  has  so  developed  that  a  uniform 
Income  or  General  Profit  and  Loss  Account  now  can  be  adopted. 

Items  That  Should  Appear  in  the  Profit  and  Loss  Account. — The 
items  that  enter  into  the  Profit  and  Loss  Account  consist  of  five  groups, 
one  credit  and  four  debits,  as  follows: 

1.  Revenue  or  Income;  Credit, 

2.  Expense;  Debit, 

3.  Losses;  debit, 

4.  Capital  Returned;  debit, 

5.  Federal  Income  and  Profits  Taxes;  debit. 

The  items  that  make  up  the  Revenue  or  Income  group  should  be 
all  the  revenue  received  by  the  business  plus  the  amount  of  unsold  ore 
and  bullion,  etc.,  on  hand  at  end  of  year  and  less  the  amount  of  unsold 
ore,  bullion,  etc.,  on  hand  the  beginning  of  the  year  and  the  items  com- 
posing the  Expense  groups  should  be  all  charges  that  each  year's  opera- 
tions should  bear,  regardless  of  whether  or  not  all  the  revenue  is  taxable 
income  and  all  the  expense  will  be  allowed  in  determining  the  income  tax. 

If,  during  the  year,  there  has  been  any  losses  that  should  not  be 
charged  to  production  expense,  such  should  be  shown  under  Losses 
in  the  Profit  and  Loss  Account. 

All  items  of  revenue  that  are  exempt  from  taxation  and  any  expense 
and  losses  that  will  not  be  allowed  in  determining  net  taxable  income, 
should  be  so  carried  in  separate  general  or  subsidiary  accounts  as  to  be 
quickly  ascertained  in  making  up  the  statement  of  taxable  income. 

Determining  the  Yearly  Profit  and  loss. — In  closing  the  books  to 
determine  the  yearly  Profit  or  Loss,  the  "Administrative  Balance  Sheet 
Before  Closing  for  the  Year"  is  consulted  and  a  journal  entry  is  made 
first  closing  out  the  revenue  or  income  accounts,  as  follows: 

Profit  and  Loss $2,668,083.03 

To  Gross  Value  of  Production $2 ,609 ,452 .  47 

Miscellaneous  Operating  Earnings 5, 121 . 89 

Interest  on  Investments 30,457. 12 

Interest  on  Bank  Deposits 23 ,051 .  55 

"Closing  out  the  Yearly  Revenue  to  Profit  and 

Loss." 


YEARLY  INCOME  OR  PROFIT  AND  LOSS  AND  SURPLUS        179 

For  the  Expense,  Profit  and  Loss  is  debited  and  Total  Operating 
and  Total  Administrative  Expense  is  credited.  The  Capital  Returned 
is  closed  out  by  debiting  Profit  and  Loss  and  crediting  Depreciation  of 
Equipment  and  Depletion  of  Mine  Investment  and  Mine  Appreciation. 
The  Federal  Taxes  are  then  credited  and  Profit  and  Loss  debited.  These 
entries  are  posted  and  the  Income  or  Profit  and  Loss  Account  ruled, 
and  a  statement  made  up,  as  follows: 

Income  or  Profit  and  Loss  Account 

For  Year— 1918 

Income 

Gross  Value  of  Production $2,609,452.47 

Miscellaneous  Operating  Earnings 5 ,  121 .  89 

Interest  on  Investments 30,457. 12 

Interest  on  Bank  Deposits 23,051.55     $2,668,083.03 

Expense 

Total  Operating  Expense $1,767,072.38 

Total  Administrative  Expense 83,801.64       1,850,874.02 

Gross  Operating  Returns $     817  209.01 

Capital  Returned 

Depreciation  of  Equipment $  36,474.50 

Depletion  of  Mine  Investment 182,717.08     $     219,191.58 

Depletion  of  Mine  Appreciation 321,999.89  541,191.47 

Net  Income $     276 ,017 .  54 

Federal  Taxes 38,410.67 

Net  Profit  for  Year  to  Surplus  Account $     237 ,  606 .  87 

At  rate  per  share  of 

It  is  not  necessary  to  detail  the  expense  charges,  as  this  information 
is  shown  on  the  Cost  Statement  furnished  the  directors,  which  is  embodied 
in  the  Yearly  Report  to  Stockholders. 

SURPLUS 

The  profit  for  the  year  amounting  to  $237,606.87  is  now  transferred 
from  the  Income  or  Profit  and  Loss  Account  to  Surplus. 

The  dividends  from  earnings  declared  during  the  year  amounting  to 
$437,500.00  are  closed  into  Surplus,  and  the  balance  left  in  this  account 
appears  on  the  Balance  Sheet  as  Surplus. 

Should  the  results  of  any  year's  operatings  show  a  loss  in  excess  of  the 
balance  in  the  Surplus  Account,  the  Surplus  Account  would  show  a  debit 
and  appear  on  the  Balance  Sheet  as  a^deficit. 

In  reporting  dividends  paid  out  of  surplus  for  purpose  of  determining 
taxable  income,  any  dividend  distributed  during  the  first  60  days  of  any 
taxable  year  is  deemed  to  have  been  made  from  earnings  or  surplus  accu- 
mulated during  the  preceding  taxable  year.  Any  distribution  made 
during  the  remainder  of  the  taxable  year  is  deemed  to  have  been  made 


180  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

from  earnings  accumulated  between  the  close  of  the  preceding  taxable 
year  and  the  date  of  distribution  to  the  extent  of  such  earnings. 

Therefore,  at  the  end  of  each  year  the  stockholders  should  be  advised 
of  the  amount  of  dividends  paid  out  of  the  current  year's  earnings  and 
previous  year's  surplus. 

Adjusting  the  Surplus  Account. — In  determining  whether  or  not  the 
income  for  the  year  is  subject  to  excess  profits  tax,  the  Surplus  for  use  as 
Invested  Capital  must  be  analyzed  and  made  to  conform  to  the  require- 
ments of  the  Treasury  Department,  as  set  forth  in  Regulations  No.  45. 
When  the  amount  of  Surplus  as  determined  according  to  the  Treasury 
Department's  Regulations  does  not  coincide  with  the  amount  as  deter- 
mined by  the  accounting  methods  used  in  the  business,  as  the  result  of 
improper  accounting  it  is  best  to  correct  the  accounting  methods.  When 
there  is  a  difference  due  to  refusal  to  allow  certain  items  of  expense  or 
depreciation  that  it  is  considered  to  the  best  interests  of  the  business  to 
charge  to  operations,  it  is  best  to  keep  a  subsidiary  surplus  account,  or  a 
memorandum  of  the  adjustments  to  be  made  to  bring  the  Surplus  to 
the  amount  allowed  by  the  Treasury  Department  in  determing  taxable 
income  and  invested  capital. 

Surplus  Account  for  the  Year. — An  analysis  of  the  Surplus  Account 
after  closing  would  give  a  statement,  as  follows: 

Surplus  Account 

Balance,  January  1,  1918 $1,003,128.51 

Net  Profit  for  Year  1918 237,606.67     $1,240,735.18 

Dividends  Nos.  23  to  26 437,500.00 

Balance,  December  31,  1918 $     803,235.18 


CHAPTER  XXI 
BALANCE  SHEET 

All  the  business  transactions  for  the  year  having  been  properly 
recorded  upon  the  books  according  to  accounting  principles  and  approved 
accounting  procedure,  and  the  results  of  the  year's  operations  and  divi- 
dend disbursements  having  been  determined,  as  shown  by  the  Profit  and 
Loss  Statement  and  the  Surplus  Account,  it  is  now  necessary  to  make  up 
a  Balance  Sheet  from  the  balances  appearing  on  the  General  Ledger  in 
proper  form  so  as  to  show  the  true  condition  of  the  business  at  the  end 
of  the  year. 

GROUPING  OF  BALANCE  SHEET  ITEMS 

In  taking  the  balances  from  the  ledger  to  make  up  the  Balance  Sheet, 
the  items  should  be  grouped  so  as  to  show  the  true  condition  of  the  busi- 
ness and  to  enable  the  President,  Treasurer  and  the  other  officers  and 
directors,  to  readily  ascertain  the  facts  as  to  each  group  of  assets  and  lia- 
bilities of  the  business. 

Each  item  appearing  on  the  Balance  Sheet  should  be  included  in  the 
proper  one  of  the  following  groups: 

Assets  Liabilities 

1.  Current  or  Operating  Assets  1.  Current  or  Operating  Liabilities 

2.  Investment  Assets  2.  Investment  Liabilities 

3.  Deferred  Charges  3.  Deferred  Credits 

4.  Property    Investment    or    Fixed  As-         4.  Property  Reserves 

sets  5.  Appreciation  Reserve 

5.  Property  Appreciation  6.  Capital  Issued 

7.  Surplus 

Any  item  carried  on  the  ledger  belongs  in  some  one  of  the  above  groups, 
and  sufficient  attention  should  be  given  each  item  to  insure  that  it  is 
properly  grouped. 

ARRANGEMENT  OF  GROUPS  AND  ITEMS 
The  arrangement  of  the  groups  of  assets  and  liabilities  can  be  made  as 
above,  or  to  conform  to  the  individual  ideas  of  the  Treasurer  or  President 
of  each  business.  The  arrangement  as  shown  places  the  most  important 
group,  as  far  as  operations  are  concerned,  i.e,,  Current  or  Operating 
Assets  and  Liabilities,  first,  and  the  other  groups  follow  in  natural  order 
as  to  their  importance  from  an  operating  standpoint. 

In  arranging  the  items  composing  each  group  the  most  important 
item  of  the  group  should  appear  first  in  each  group,  and  the  other  items 
should  follow  according  to  importance.  The  most  important  item  does 
not  necessarily  mean  the  largest  amount.  Cash  is  always  the  most  im- 
portant item  of  Current  or  Operating  Assets,  regardless  of  the  amount  of 
cash  on  hand. 

181 


182  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

BALANCE  SHEET  STATEMENT 

The  items  appearing  upon  the  ledger  having  been  arranged  into  groups, 
and  the  groups  and  items  arranged  as  to  importance  from  an  operating 
standpoint,  a  balance  sheet  statement  would  be  obtained,  as  follows: 

Balance  Sheet  At  Close  of  Business,  December  31,  1918 

Assets 
Current  or  Operating  Assets 

Cash $     760,319.10 

Current  Accounts  Receivable 23,581 .22 

Sold  Metal  Due  for  Shipment 212,920.07 

Due  for  Gold  and  Silver  Sold 23,467.54 

Unsold  Metal  in  Transit  at  Cost 489,373.42 

Lead  Concentrates  at  Cost 53,874.04 

Lead  Ore  Production  and  In  Process 5 ,400 .  64 

Ores  on  Hand  at  Cost 4,466.46     $  1 ,573,402.49 

Investment  Assets 

United  States  Liberty  Bonds 786,428. 15 

Deferred  Charges 

Materials  and  Supplies $     139 ,521 .  88 

Suspense 8,735.91           148,257.79 

Property  Investment 

Construction  and  Equipment $     548,313.93 

Mine  Property  Investment 3,022,500.00         3,570,813.93 

Property  Appreciation 

Mine  Property  Appreciation $5 ,  326 ,  515 .  62 

Less  Depletion  Distributed 1 ,400 ,000 .  00         3 ,926 ,515 .  62 

$10,005,417,98 

Liabilities 

Current  or  Operating  Liabilities 

Current  Accounts  Payable $     100,124.61 

Accrued  Accounts  Payable 136,752.94 

Reserve  for  Dividend  from  Surplus 175,000.00 

Reserve  for  Accidents 68 ,618 .  82 

Reserve  for  Unclaimed  Dividends 1 18 .  00     $      480 ,  614 .  37 

Property  Reserves 
Reserve  for  Depletion: 

Of  Mine  Investment $880,700.59 

Of  Mine  Appreciation 152,047.85  $1,032,748.44 

Reserve  for  Depreciation  of  Equipment 262 ,  304 .37         1 ,  295 ,  052 .  81 

Appreciation  Reserve 

Property  Appreciation  Reserve $5,326,515.62 

Less  Capital  Dividends  Paid 1,400,000.00       3,926,515.62 

Total  Liabilities $5,702,182.80 

Invested  Capital 

Capital  Stock  Issued $3 ,  500 ,000 .  00 

Earned  Surplus 803 ,235 .  18         4 ,303 ,235 .  18 

$10,0057417798 


BALANCE  SHEET  183 

BALANCE  SHEET  SCHEDULES 

Schedules  analyzing  the  items  appearing  in  the  Current  Asset  and 
Liability  Groups,  as  shown  by  the  Operating  Schedules  in  Chapter  XII 
should  accompany  the  Balance  Sheet  and  should  give  the  information 
necessary,  to  enable  the  Treasurer  to  determine  whether  or  not  the 
Current  Assets  will  take  care  of  current  and  investment  liabilities  as 
they  become  due,  and  what  amount  of  cash,  if  any,  will  be  available  for 
dividend  disbursements. 

Also,  it  is  well  to  make  up  schedules  of  Investment  Assets,  of  the 
Deferred  Charges,  and  of  the  Property  Investment  in  Construction  and 
Equipment. 

The  Schedule  of  Investment  Assets  will  act  as  a  guide  in  determining 
the  possible  future  income  from  investments.  The  Schedule  of  Materials 
and  Supplies  should  be  as  to  stocks  only  and  not  individual  items. 
This  schedule  is  of  value  for  comparison  with  past  schedules  and  in 
determining  future  policy  of  purchasing.  The  Schedule  of  Construc- 
tion and  Equipment  is  of  use  for  reference  as  to  cost  of  equipment 
and  the  undepreciated  balances,  in  determining  amount  of  insurance  that 
should  be  carried,  the  amount  of  investment  that  would  be  scrapped  if 
replaced  by  more  efficient  equipment,  whether  or  not  the  rate  of  depre- 
ciation being  charged  is  too  large  or  too  small  to  take  care  of  actual  wear 
and  tear  and  obsolesence,  etc. 

To  obtain  the  proper  perspective  of  the  business  from  the  Balance 
Sheet  and  Schedules  and  the  Profit  and  Loss  Account,  the  Cost  Sheets 
and  Production  Statements,  as  well  as  the  Statement  of  Ore  Reserves 
and  the  present  condition  and  possible  future  trend  of  the  metal  market 
also  must  be  considered. 

When  furnished  with  a  Balance  Sheet  and  Profit  and  Loss  Statement 
properly  drawn,  together  with  Statements  of  Costs,  Production  and  Ore 
Reserves,  the  directors  are  fully  informed  as  to  the  results  and  condition 
of  their  business,  and  are  in  position  to  balance  this  information  against 
the  present  market  conditions  and  to  determine  intelligently  what  policy 
should  be  pursued  for  the  coming  year. 

It  will  be  noted  that  the  Mine  Property  Appreciation  and  the  Property 
Appreciation  Reserve  Accounts  are  shown  for  the  total  amount  with  the 
amount  of  Capital  Distributions  deducted.  It  is  best  so  to  show  these 
accounts  on  the  Balance  Sheet  in  order  that  the  amount  of  Capital 
Distributions  will  be  known. 

INVESTED  CAPITAL 

The  Invested  Capital  appearing  on  the  Balance  Sheet  is  not  neces- 
sarily the  amount  that  is  used  in  determining  whether  or  not  the  income 
for  the  year  shall  bear  the  Excess  Profits  Tax.  The  amount  of  Invested 
Capital  in  the  business,  as  shown  on  the  Balance  Sheet,  must  be  adjusted 


184  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

to  meet  the  requirements  of  the  Treasury  Department's  Regulations 
No.  45.  Due  to  the  fact  that  the  amount  of  Undistributed  Realized 
Appreciation,  the  Reserve  for  Accidents,  and  the  Reserve  for  Taxes, 
may  be  added  to  the  Surplus  when  determining  the  amount  of  Invested 
Capital  for  use  in  ascertaining  the  Excess  Profits  Tax,  it  is  best  to  keep 
a  memorandum  of  the  allowable  Invested  Capital  and  to  allow  the 
ledger  accounts  to  stand  as  created. 

RE-OPENING  THE  CONNECTING  ACCOUNTS 

After  the  Income  for  the  year  has  been  determined  and  the  Balance 
Sheet  drawn,  the  connecting  Operating  Accounts  and  the  Treasurer's 
Accounts  are  re-opened  by  reversing  the  closing  entries,  as  follows: 

Treasurer,  Current  Year $730,686.78 

To  Operating  Account,  Current  Year $730 ,  686 .  78 

"Opening  up  the  Current  Year  Operating  Account." 
Operating  Account,  Previous  Year $933 ,611 .  77 

To  Treasurer,  Previous  Year 933 ,611 .  77 

"Opening  up  the  Previous  Year's  Operating  Ac- 
counts." 

The  connecting  Operating  Accounts  having  been  re-opened,  the 
"Current  Year's  Accounts"  preparatory  for  the  operations  of  the  new 
year  are  closed  into  the  Previous  Year's  Accounts  by  entries,  as  follows: 

Treasurer,  Previous  Year $730,686.78 

To  Treasurer,  Current  Year $730,686.78 

"Closing  out  the  Current  Year  Treasurer's  Account 
to  coincide  with  Operating  Books." 

Operating  Account,  Current  Year $730,686.78 

To  Operating  Account,  Previous  Year $730,686.78 

"Closing  the  Administrative  Current  Year  Account." 

In  order  to  bring  the  Operating  Account  on  the  Administrative  Books 
into  agreement  with  the  Treasurer's  Account  on  the  Operating  Books,  the 
results  of  the  year's  production  operations,  as  well  as  the  year's  depletion 
as  shown  by  the  Operating  Books,  is  credited  to  the  Treasurer's  Account 
that  has  been  transferred  from  the  Operating  Books,  to  the  Administra- 
tive Books  by  entries,  as  follows: 

Operating  Account,  Previous  Year $306,310.51 

To  Treasurer,  Previous  Year $306,310.51 

"Crediting  the  Operating  Account  Treasurer  with 

amount  of  operating  profit  for  year  1918,  absorbed  from 

Operating  Books." 

Operating  Account,  Previous  Year $504,716.97 

To  Treasurer,  Previous  Year $504 ,  716 .  97 

"Crediting  the  Operating  Account  Treasurer  with 

amount  of  1918  depletion  token  up  on  Operating  Books 

and  transferred  to  Administrative  Books." 


BALANCE  SHEET  185 

Upon  posting  these  entries,  it  will  be  found  that  the  Administrative 
"Operating  Account"  and  the  Operating  "Treasurer's  Account"  each 
show  a  balance  of  $1,013,952.47. 

Closing  off  the  Operating  Accounts.— In  order  to  close  the  Operating 
Accounts  appearing  on  the  Administrative  Ledger,  a  journal  entry  of  the 
remaining  operating  accounts  that  were  not  closed  to  Profit  and  Loss  is 
made,  as  follows: 

Cash  at  Mine |      52,383.78 

Accounts  Receivable,  Mine 5  735  57 

Ores  on  Hand  at  Cost 4  455  45 

Unsold  Metal  In  Transit 439  373  42 

Sold  Metal  Due  for  Shipment 212  920  07 

Due  for  Gold  and  Silver  Sold 23  467. 54 

Lead  Ore  Production  at  Cost 4  535  91 

Lead  Ore  in  Process  at  Cost 863  73 

Lead  Concentrates  at  Cost 53  874.04 

Materials  and  Supplies 139 ,  521 .  88 

Suspense 8^735. 91 

Construction  and  Equipment 547,462. 23 

$1,543,342.54 

Current  Accounts  Payable $     100 ,  124 .  61 

Bullion  Freight  and  Refining  Not  Due 45,868.38 

Selling  Expense  Not  Due 15,713.31 

Reserve  for  Taxes 36,760.58 

Reserve  for  Accidents 68,618.82 

Reserve  for  Depreciation  of  Equipment 262 ,  304 .  37 

Treasurer,  Previous  Year 1 ,013 ,952.47 

$1,543,342.54 
"Closing  the  Operating  Accounts  from  the  Administrative  Ledger." 

There  will  now  appear  upon  the  Administrative  Ledger  only  the 
balances  of  the  Administrative  Accounts,  which,  together  with  the 
Operating  Accounts  closed  out,  should  be  ruled  preparatory  to  the  work 
of  the  new  year. 

ACCOUNTING  FOR  HOLDING  COMPANIES 

It  is  the  practice  of  some  of  the  larger  mining  companies  having 
numerous  mines,  smelters,  etc.,  to  have  a  separate  organization  for  each 
mining  group  and  to  have  a  holding  company  into  which  the  operating 
results  of  each  group  is  delivered. 

In  such  cases  the  same  accounting  procedure  is  followed  as  herein 
illustrated,  except  the  Administrative  Accounting  of  the  holding  company 
will  have  a  separate  connecting  account  for  each  subsidiary  company, 
and  will  carry  separate  receipt  and  administrative  expense  accounts  for 
each  subsidiary  company. 


186  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

The  general  income  or  profit  and  loss  account  and  the  general  balance 
sheet  will  be  consolidated  in  the  same  manner  as  herein  illustrated  for 
Administrative  Accounting. 

LIQUIDATION  OF  THE  BUSINESS 

As  the  Accounting  required  to  close  a  business  upon  liquidation  is 
simple,  it  is  not  necessary  to  detail  the  entries.  When  a  development 
company  fails  to  make  a  discovery  of  ore,  or  has  mined  out  the  ore  that 
has  been  discovered,  and  is  unable  to  proceed  with  further  development, 
it  is  then  customary  to  liquidate  the  current  assets  and  liabilities  and  to 
dispose  of  the  mining  equipment.  Whatever  amount  is  left  after  all 
liabilities  have  been  met  and  provision  made  for  future  taxes  is  usually 
distributed  to  the  stockholders  as  a  capital  dividend  and  the  capital 
stock  account  is  reduced  a  like  amount.  If  the  mining  property  is 
patented,  it  is  customary  to  hold  the  ground,  pay  the  State  and  County 
Taxes  and  keep  the  corporation  in  existence  by  holding  a  stockholders' 
and  directors'  meeting  once  a  year,  in  order  to  be  able  to  transfer  the  mine 
property  should  a  purchaser  be  found. 

When  a  development  property  that  has  proven  a  failure  or  a  proven 
mine  that  has  become  exhausted  closes  its  business  entirely  the  assets 
including  mine  equipment  and  mine  property  are  reduced  to  cash,  the 
liabilities  satisfied  and  any  surplus  is  first  distributed  as  regular  dividends, 
and  the  remainder  as  capital  dividends,  which  are  delivered  upon  receipt 
of  stock  certificates  or  evidence  of  shares  of  interest  from  the  stockholders 
or  partners  and  the  proper  accounts  in  the  stock  ledger  are  debited  and 
closed.  If  there  is  sufficient  cash  to  pay  capital  dividends  equal  to  the 
amount  of  the  original  capital,  the  capital  account  is  balanced  and  the 
general  books  closed.  If  there  is  not  sufficient  cash  to  return  the  original 
capital  in  dividends  the  amount  left  in  the  capital  account  after  payment 
of  capital  dividends  is  closed  to  the  profit  and  loss  account  as  a  loss,  and 
the  general  books  as  closed  will  show  a  loss. 

As  the  amount  that  can  be  obtained  by  sale  of  mine  equipment,  after 
a  mine  becomes  defunct,  is  usually  very  small,  it  is  best  to  charge  to 
operations  by  depreciation  all  of  the  equipment  investment  before  exhaus- 
tion, and  to  consider  the  receipts  from  sale  of  equipment  as  income. 


SECTION   4 
COST  ACCOUNTING 


187 


EXPENSE 


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189 


Operating  Cost  Accounts 
Chart  XIV 


Cost  Ledger  Accounts 

General 
Account 
Number 

Cost 
Account 
Number 

Sub-department  Account 

Unit  Account 

6 

51 

Machine  Shop 
Blacksmith  Shop 

51-A 

51-B 

Electric  Shop 
Carpenter  Shop 

51-C 

52 

Sawmill 

7 

53 

Boilers 

Each  Unit 

54 

Compressors 

Each  Unit 

55 

Electric  Plant 

56 

Air  Drills 

(a)  General 

(6)  Hose  and  Fittings 

(c)  Air  Lines 

(d)  Each  Drill 

(e)  Air 

17 

59 

Sinking 

Each  Shaft  and  Winze 

00 

Stations 

Each  Station 

61 

Drifting 

Each  Drift  and  Crosscut 

62 

Raising 

Each  Raise 

63 

Diamond  Drilling 

Each  Hole 

64 

Churn  Drilling 

Each  Hole 

65 

Development  Overhead 

18 

66 

Stoping 

Each  Stope 

67 

Tramming  and  Tracks 

(a)  Tramming  Ore 
(6)  Tramming  Waste 

(c)  Cars 

(d)  Underground  Tracks 

68 

Station  Tending  and  Caging 

(a)  Station  Tending 
(6)  Caging 

69 

Hoisting 

(a)  Each  Hoist 

70 

Top  Landing  and  Tramming 

(a)  Top  Landing 

(6)  Waste  Haulage 

(0  Surface  Tracks 

71 

Maintenance  Shaft  and  Drifts 

(a)  Maintenance  Shaft 
(6)  Maintenance  Drifts 

72 

General  Underground 

(a)  Distributing  Supplies 

(6)  Sampling 

\c)  Tools  and  Sundries 

(d)  Water  and  Lights 

(e)  Lamps  and  Carbide 

73 

Pumping 

Each  Pump 
(n)  General 

74 

Surface 

(6)  Drymen,  Watchmen  and  Messenger 

(c)  Water  and  Lights 

(d)  Building  Repairs 

(e)  Ore  Bins  Repairs 

(/)  Roads  and  Trails 

(g)  Heating 

75 

Engineering 

76 

Assaying 

77 

Supervision 

(a)  Superintendent  and  Foreman 
(6)  Shifters  and  Head  Shifters 

(c)  Dwellings  Occupied 

(d)  Allowances 

19 

78 

Crushing  and  Conveying 

79 

Tabling 

80 

Grinding 

81 

Desliming  and  Thickening 

82 

Flotation 

83 

Concentrates  Disposal 

84 

Supervision 

85 

General 

Note. — Repairs  for   Milling  must  show 

each  Job  separately   with  the  propel 

departmental  account  name. 

190 


Operating  Cost  Accounts 
Chart  XIV  (Continued) 


Cost 
Account 
Number 


Cost  Ledger  Accounts 


Sub-department  Account 


Unit  Account 


86 
87 


90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 


101 
102 


110 

111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
122 
123 
124 
125 
126 
127 
131 
132 
133 
134 
135 
136 
137 
138 
139 
140 


Mine  Tramming 
Ore  Freight 

Treatment 

Sampling  and  Assaying 

Accounting  Office 

Purchasing  Office 

Employment  Office 

Office  General 

Telegrams  and  Telephones 

Insurance 

Accident  Insurance 

Taxes 

Legal 

Traveling 

Miscellaneous 


Bullion  Freight 
Refining 

Repairs  of  Equipment,  etc. 

Replacements  of  Equipment 

Hoist  and  Gallows  Frame 

Compressor  and  Boilers 

Pumps  and  Pump  Column 

Condenser  and  Cooling  Pond 

Water  Tanks 

Oil  System 

Tramway  Equipment 

Sawmill  Equipment 

Machine  Shop  Equipment 

Blacksmith  Shop  Equipment 

Electrical  Equipment 

Engineering  and  Assaying  Equipment 

Mine  Dwellings 

Bins  and  Trestles 

Furniture  and  Fixtures 

Horses  and  Wagons 

Mine  Buildings 

Mill  Equipment 

Mill  Tracks  and  Bins 

General 

Iron  and  Steel 

Explosives 

Fuel 

Lumber  and  Timber 

Machinery 

Pipe  and  Fittings 

Oils  and  Greases 

Tools 

Handling 


Jobs 


(a)  Donations 

(6)  Books  and  Papers 

(c)  Allowances 

(d)  Sundries 

(e)  First  Aid 

(/)  Experiments 


Each  Job 
Each  Job 


Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 
Each  Unit 


(a)  Framing  Timber 

(b)  Pumping  Oil 

(c)  Warehouse  Expense 

(d)  Miscellaneous 

(e)  Teaming 

(/)  Mill  Supplies 
Each  Job 


Where  it  is  desired  to  keep  a  separate  record  of  the  expense,  etc..  of  different 
divisions  of  operations,  or  to  keep  separate  record  of  the  expense,  etc  of  more 
tnln  one  mine,  the  same  accounts  will  be  used  for  each  division  and  then  com- 
bined for  entry  on  the  books. 


191 


CHAPTER  XXII 
COST  ACCOUNTING 

Costing,  better  known  as  Cost  Accounting,  is  the  dividing  of  the 
operations  into  divisions  and  departments,  and  the  departments  into 
units;  the  segregating  of  the  expense  chargeable  to  these  divisions,  de- 
partments and  units  into  the  different  elements  of  expense ;  the  determin- 
ing of  the  production  factors  for  each  division  and  department,  and  the 
operating  factors  for  each  unit  of  organization  or  equipment;  and  then 
showing  the  resulting  cost  for  each  division,  department,  etc.,  of  each 
element  of  expense  per  production  or  operating  factor  for  a  certain 
period  of  time,  as  shown  by  Chart   XIII. 

In  order  that  the  organization  may  get  the  full  benefit  of  Cost  Ac- 
counting the  one  in  charge  of  the  costing  should  be  not  only  well  grounded 
in  accounting  and  business  principles  but  must  be  familiar  with  the 
details  of  the  actual  operations  of  each  department,  and  be  able  to  obtain 
the  cooperation  of  each  of  the  operating  heads.  To  assist  the  head  of 
the  Cost  Accounting  Department  in  obtaining  cooperation,  he  should 
have  the  unqualified  support  of  the  Manager. 

Before  analyzing  the  business  for  the  purpose  of  determining  costs, 
there  should  be  decided  the  cost  method  that  is  to  be  used. 

METHOD  OF  COST  DETERMINATION 

At  present,  there  are  two  principal  methods  of  determining  mining 
costs : 

First:  The  Departmental  Unit  Method, 
Second:  The  Departmental  Pro-rated  Method. 

The  Departmental  Unit  Method  divides  each  of  the  departments  of 
the  organization  into  sub-departments,  and  the  sub-departments  into 
units  regardless  of  whether  or  not  the  sub-departments  or  units  are 
productive  or  overhead,  and  segregates  the  expense  into  the  proper  ele- 
ments and  distributes  the  expense  direct  to  each  sub-department  and 
unit. 

The  Departmental  pro-rated  Method  segregates  the  departments 
and  distributes  the  expense  in  a  like  manner,  but  further  divides  the 
sub-departments  and  units  into  productive  and  overhead  and  pro-rates 
the  expense  of  the  overhead  departments  to  the  productive  departments. 

The  first  method  is  similar  to  the  Process  Method  used  by  manufac- 
turing concerns,  while  the  latter  method  is  of  the  nature  of  the  Order  or 

192 


COST  ACCOUNTING  193 

Production  Unit  Method  used  in  manufacturing  when  making  more 
than  one  article  for  sale  when  it  is  necessary  to  get  the  exact  production 
cost  for  each  article  in  order  to  determine  the  proper  selling  price.  How- 
ever, in  mining  where  there  is  usually  only  one  principal  product  with 
sometimes  a  by-product  which  is  treated  as  a  credit,  the  Pro-rated  Method 
is  not  necessary  and  only  increases  the  amount  of  bookkeeping  and  seg- 
regating, and  makes  the  costs  more  complicated  and  difficult  to  compre- 
hend and  analyze.  The  Departmental  Unit  Method  is  the  one  best 
adopted  to  mining  and  will  be  the  method  illustrated.  However,  the  ac- 
countant should  be  familiar  with  the  Production  Unit  Method  which  is 
useful  in  determining  economic  costs. 

COST  PRINCIPLES 

Due  to  the  varying  nature  of  ore  deposits,  different  methods  of  ore 
extraction,  treatment  and  disposal  of  products,  there  is  no  uniformity  in 
mine  cost  accounting  procedure  at  present.  However,  the  basic  prin- 
ciples of  costing  are  the  same  in  all  cases,  as  shown  by  Chart  XIII,  and 
should  be  followed  in  compiling  the  costs  for  each  individual  organization 
regardless  of  the  accounts  kept,  or  method  used  in  compiling  the  costs. 
The  four  basic  cost  principles  should  receive  consideration  in  the 
following  order: 

First :  Units  of  Organization  or  Work  and  Equipment, 
Second:  Expense, 

Third:  Cost  Factors  of  Production  and  Operation,  and 
Fourth:  Time. 

UNITS  OF  ORGANIZATION 

The  organization  units  of  the  business  consist  of: 

Divisions, 
Departments, 
Sub-departments, 
Sub-department  Units. 

DIVISIONS 

By  reference  to  Chart  XIII,  it  will  be  noted  that  two  divisions  are 
shown,  consisting  of  Administration  and  Operation.  Federal  Taxes  are  an 
expense  item  instead  of  a  sub-department  of  Administration.  However, 
due  to  the  fact  that  the  federal  taxes  in  numerous  instances  amount 
to  more  than  the  remaining  administrative  expense,  and  are  something 
over  which  the  administrative  organization  has  no  control,  it  has  become 
the  practice  to  show  such  taxes  as  a  separate  department  of  administration, 
in  making  up  statements  of  costs  for  publication. 

While  Depletion  and  Depreciation  are  items  of  expense  chargeable 
to  Operation  and  not  sub-departments  of  Administration,  nevertheless 

M 


194  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

these  items  are  shown  separately  as  departments  of  administration  instead 
of  including  them  under  expense  to  be  distributed  to  operation.  By  so 
doing  there  is  obtained  a  separate  charge  to  Profit  and  Loss,  in  order 
to  show  in  the  latter  account  the  amount  of  capital  returned  as  the  result 
of  production  operations,  and  depreciation  and  depletion,  being  fixed 
charges,  they  are  best  left  out  of  the  detail  costs,  and  included  in  the 
total  cost.  Even  though  the  depletion  were  included  in  expense  and 
charged  to  operation,  it  would  be  a  total  fixed  operating  charge  from 
month  to  month,  and  in  closing  the  books  at  the  end  of  the  year,  phould 
be  taken  out  of  operation  and  shown  as  a  separate  charge  to  Profit  and 
Loss. 

Another  reason  for  considering  the  depletion  charge  as  a  separate 
department  instead  of  an  expense  item,  is  that  in  numerous  cases,  the 
depletion  set  up  on  the  books  includes  depletion  of  appreciation  as  of 
March  1,  1913,  or  as  of  date  of  discovery,  as  well  as  depletion  of  actual 
investment. 

In  figuring  the  total  costs,  only  that  amount  of  depletion  that  repre- 
sents return  of  actual  investment  should  be  used.  If  the  depletion  of 
appreciation  is  included  a  fictitious  cost  is  obtained. 

In  theory,  the  depreciation  charge  should  be  pro-rated  to  the  produc- 
tion from  each  unit  of  operating  equipment,  and  the  amount  of  such 
depreciation  charge  should  be  recorded  for  use  in  determining  economic 
costs.  However,  this  is  found  impracticable  in  actual  mining.  There- 
fore, the  depreciation  charge  is  usually  handled  as  a  separate  depart- 
ment of  administration  on  the  cost  sheet  the  same  as  depletion  and  for 
the  same  reasons. 

The  Operating  Overhead  is  not  a  department  of  the  organization, 
but  is  the  amount  of  the  Operating  Overhead  expense,  which  in  manu- 
facturing would  be  distributed  to  each  order  or  unit  of  production,  but 
as  in  mining  there  is  usually  produced  only  one  product,  the  general 
overhead  is  carried  as  a  department  of  the  organization  and  not  distributed. 

DEPARTMENTS,  ETC. 

In  costing  procedure  the  Operation  and  Administration  Department 
Accounts  established  for  general  accounting  are  also  used  for  costing. 
While  in  general  accounting  the  administration  is  not  divided  into  depart- 
ments, and  the  amount  of  depreciation,  Depletion  and  Federal  Taxes 
are  shown  as  separate  items,  in  Costing  the  amounts  of  Administration, 
Depreciation,  Depletion  and  Federal  Taxes  are  shown  as  Administrative 
Costs,  and  the  operating  cost  is  shown  for  each  operating  department, 
as  illustrated  on  Chart   XIII. 

The  Operating  Department  Expense  Accounts,  Prepaid  Expense  Ac- 
counts and  Assets  Accounts,  as  shown  by  Chart  IV  and  the  Admin  istra- 
tive  Expense  Accounts,  as  shown  by  Chart  XII,  a  summary  of  which  is 


COST  ACCOUNTING  195 

shown  by  Chart  X11I,  having  been  accepted  as  control  cost  accounts,  it  is 
necessary  to  analyze  each  operating  department  into  its  proper  sub-de- 
partments and  sub-departments  into  as  many  units  as  desired  for  cost 
purposes,  and  to  establish  a  chart  of  Cost  Accounts,  as  shown  by  Chart 
XIV.  By  reference  to  this  chart  it  will  be  noted  that  the  units  of  the  Dis- 
bursement Accounts  of  Shops  and  Power,  are  also  shown  as  this  infor- 
mation must  be  kept  by  the  Cost  Department. 

EXPENSE 

The  cost  accounts  covering  departmental  expense,  prepaid  expense 
and  assets,  having  been  determined,  it  is  then  necessary  to  distribute  to 
these  accounts  the  expense  of  operation,  consisting  of  direct,  indirect, 
and  accrued  as  shown  by  Chart  IV  in  the  following  order: 

Labor  Replacements 

Supplies  Suspense 

Bills  Audited  Power 

Shops  Sundry  Expense. 

Repairs 

It  is  necessary  to  take  up  the  distribution  of  the  expense  accounts  in  the 
order  shown,  due  to  the  fact  that  the  Shops  Account  usually  contain 
charges  to  be  distributed  to  the  prepaid  expense  accounts  of  Repairs 
and  Replacements,  and  the  latter  accounts  contain  charges  for  the  Power 
Account.  It  is  absolutely  necessary  to  record  all  expense  for  each 
period,  taking  up  through  the  accrued  accounts  all  items  that  are  not 
due  and  payable,  and  making  provision  for  all  probable  losses  by  setting 
up  reserve  accounts. 

SCHEDULE  OF  CHARGES  AND  CREDITS  TO  COST  ACCOUNTS 

Before  taking  up  the  distribution  of  the  expense,  there  should  be 
established  a  Schedule  of  Charges  and  Credits  to  Cost  Accounts.  This 
will  serve  as  a  guide  to  those  making  the  segregations  and  insure  uniform- 
ity in  the  distribution  of  the  expense  from  month  to  month.  Such  a 
schedule  will  have  to  be  made  to  meet  the  needs  of  each  individual 
organization  and  will  not  be  illustrated  herein. 

EXPENSE  DISTRIBUTION  OF  LABOR 

Each  person  having  direct  supervision  of  labor,  in  addition  to  report- 
ing the  time  of  each  employe  each  day  for  record  upon  the  pay-roll,  also 
reports  the  distribution  of  the  work  of  each  employe  showing  the  job 
on  which  work  was  done. 

For  underground  mine  work,  Daily  Distribution  Reports  (Form 
No.  46)  are  made  for  each  place  or  piece  of  work  or  job,  for  each  shift. 
These  reports  are  sorted  for  each  day,  balanced  against  the  time  reports 


196 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


and  compiled  as  to  shifts  upon  Monthly  Distribution  Sheets  (Form 
No.  47),  one  monthly  sheet  being  used  for  each  Cost  Account. 
The  distribution  of  Surface  and  Shop  Labor  is  made  for  each  shift, 
either  by  the  Foreman  or  the  Timekeeper.  The  distribution  is  made 
upon  Daily  Labor  Report  (Form  No.  48),  one  report  for  each  employe, 
showing  the  hours  worked  on  each  job,  his  rate,  etc.  These  Daily  Labor 
Reports  are  summarized  as  to  total  expense  on  each  job  for  each  day,  and 
this  summary  is  then  balanced  against  the  Daily  Time  Reports  and 
compiled  as  to  dollars  upon  Monthly  Distribution  Sheet  (Form  No.  49) 
the  cost  accounts  chargeable  being  listed  on  the  left  of  the  form  and  the 
amount  of  each  day's  charge  being  entered  under  the  proper  date. 


IN  THIS  SPACE 


TIMBERMAN 


FUSE,  FEET 


AIR,  HOURS 


DRILL,  MAKE 


SHOP  NUMBER 


Form  46. — Daily  Underground  Distribution  Report. 


Form  No.  47  is  complete  as  it  provides  for  all  the  items  of  expense, 
production  factors,  organization  units,  and  time.  Form  No.  49  is  not 
complete  for  each  unit  as  it  provides  for  labor  expense  only,  except  in  the 
case  of  Shops,  when  the  amount  of  the  tools  and  operating  expense  is 
prorated  over  the  labor.  The  Supplies  and  other  items  of  expense,  other 
than  Labor,  are  compiled  for  each  unit  on  Supplies  Issued  Sheets  or  from 
the  Bills  Audited,  Repairs  and  Replacements  Records,  etc.,  which  is 
found  to  be  more  desirable. 

Check  of  Labor  Distribution. — Each  day  as  the  Daily  Distribution 
Sheets  are  balanced  against  the  Daily  Time  Reports  a  summary  is  made 
as  to  shifts  of  work,  at  each  rate,  as  shown  by  Form  No.  7,  of  the  distri- 
butions for  each  department,  and  for  each  supervisor  of  each  department, 
when  there  are  more  than  one  crew  in  each  department. 

At  the  end  of  each  month  the  total  of  this  summary  sheet  in  shifts 
work  is  extended  into  dollars  and  balanced  against  the  totals  of  Sheets 


COST  ACCOUNTING 


197 


UNDERGROUND  DISTRIBUTION  SHEET 
ACflOTTWT                                                           »«▼«-                               PIACJ5 " MONTH 

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198 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


47  and  49,  and  against  the  total  pay-rolls.     Any  discrepancy  that  is 
found  must  be  adjusted  before  any  further  work  is  done. 

Summary  of  Labor  Distribution. — When  the  distribution  of  the 
labor  expense  has  been  balanced  with  the  pay-rolls,  a  summary  of  the 
segregations  of  underground  and  surface  labor  is  made  in  proper  order 
as  to  expense  and  asset  and  indirect  disbursement  accounts  upon  Sum- 
mary of  Labor  Distribution  (Form  No.  50).     One  summary  is  made  for 


DAILY    LABOR     REPORT 

SHATTUCK  ARIZONA  COPPER  CO. 

WHERE  APPLIED 

HOCKS 

AMOUNT 

_JDate_ 


_192. 


_Rate_per_Day,_S_ 


_Name- 


Approved- 


Form  48. 


the  direct  labor  and  one  each  for  the  indirect  labor  of  Shops  and  Power. 
The  indirect  labor  to  Shops  and  Power  is  posted  direct  to  these  accounts 
which  are  distributed  later. 

This  summary  is  used  in  compiling  the  cost  data  for  the  detail  costs 
of  labor  as  shown  in  column  1  and  for  postings  from  columns  2,  3  and  4, 
to  the  Cost  Ledger  (Form  No.  51). 

Posting  the  Labor  Distributions. — There  is  kept  in  the  Cost  Ledger 
a  record  of  the  Indirect  Disbursement  Accounts  of  Shops  and  Power, 
and  of  the  Prepaid  and  Asset  Accounts,  as  well  as  of  the  Departmental 
Expense  Accounts. 


COST  ACCOUNTING 


199 


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200 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


One  cost  ledger  sheet  is  used  for  each  cost  account,  and  one  sheet  for 
each  control  cost  account,  or  general  ledger  account.  In  posting  to  the 
Cost  Ledger  from  summary  Form  No.  50  the  amount  shown  in  column 
3  is  posted  to  the  control  account,  and  the  supporting  amounts  in  col- 
umn 2  are  posted  to  the  cost  accounts.  To  balance  the  Cost  Ledger, 
the  total  postings  to  cost  accounts  are  checked  against  the  totals  of  the 
control  accounts. 


Summary  of  Labor  Distribution 

=0 

Colt 

Dm 

Cost 

Crne-al            L«JEtr 

.  Dcl.il       1      Ctcl.l 

SS2    Wu°" 

i.i 

loratioD     &     Dct.lupmeDt:  • 

RS&5J 

1 

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,'J  iv 

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j 

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-FORM    50. 


It  will  be  noted  that  the  Cost  Ledger  provides  one  line  for  each  month 
and  sufficient  columns  to  accommodate  the  expense  elements.  To 
obtain  an  average  cost  for  the  year,  or  the  year  to  date,  the  columns  are 
added  and  the  total  production  factors  to  date  divided  into  the  added 
total. 

The  detail  segregations  of  each  expense  element  shown  in  column 
1  of  form  No.  50  are  posted  first  to  *he  monthly  detail  cost  sheets  and 
then  to  Segregated  Cost  Sheets  (Form  No.  52).  One  line  is  used  for 
each  month  on  the  Segregated  Sheets  so  that  the  total  of  each  detail 
segregation  may  be  quickly  ascertained  any  time  during  the  year  and  the 
average  cost  obtained  by  dividing  the  total  expense  by  the  total  product- 
ion or  operating  units.     The  recording  of  the  monthly  details  in  this 


COST  ACCOUNTING 


201 


H 
H 
D 
O 

o 
o 

5  ^=fl 

J 

! "  I 

'"■  3 

i 

--=: : 

m 

III 

1    —     ' 

1 1 a  » 

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i 

- 

- 

. 

1   & 

■ 

*        : 

J  — 3 

13       i 

i    1 

? 

$ 


s 


202  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

manner  allows  an  examination  and  comparison  of  the  expense  and  the 
units  to  be  made  quickly  at  any  time  and  puts  such  information  in 
proper  form  for  ascertaining  average  costs. 

If  the  accounting  and  costing  is  done  in  one  office  the  totals  of  columns 
3  and  4  of  Form  No.  50  are  used  to  support  the  journal  entries  upon  the 
general  ledger.  If  the  costing  is  done  in  a  separate  office,  either  a  com- 
plete copy  of  the  Summary  of  Labor  Distribution  Sheets,  or  a  Summary 
of  columns  3  and  4  is  furnished  the  Accounting  Department. 

EXPENSE  DISTRIBUTION  OF  SUPPLIES 

The  distribution  of  all  supplies  is  made  by  the  storekeeper,  either  from 
supplies  stored  in  the  warehouse,  or  from  outside  stocks  upon  properly 
signed  requisitions  (Form  No.  14)  except  for  fuel  oil,  which  is  obtained  by 
measurement  of  tanks  each  month,  and  of  timber  which  is  obtained  from 
summary  of  reports  made  on  Form  No.  46,  and  by  Carpenter  Foreman,  of 
timber  used,  which  reports  are  checked  against  reports  of  Sawmill  and 
Yard  Foreman  of  timber  issued,  and  balanced  against  the  inventory  of 
sawed  timber  on  hand  taken  at  the  end  of  each  month. 

The  Storekeeper's  report  of  supplies  issued  for  each  unit  is  made  on 
Form  No.  16,  and  the  Record  of  Supplies  Issued  is  kept  upon  Form  No.  18, 
one  sheet  for  each  unit,  as  explained  in  General  Accounting  under  heading 
of  Supplies  Issued. 

Requisitions  for  supplies  issued  at  the  mine  originate  from  four 
sources;  from  the  Mine  Department  for  underground  work;  from  the 
Mechanical  Department  for  all  repairs  and  replacements  of  equipment  or 
construction  of  new  equipment;  from  the  Surface  Department  for  all 
surface  work;  and  from  the  Engineering  and  Assaying  Department  for 
engineering  and  assaying  work. 

The  supplies  issued  to  the  Mine  Department  consist  of  timber,  powder 
caps  and  fuse,  tools  and  carbide.  The  supplies  for  air  drills,  pumps,  track 
and  mine  cars,  electric  wiring  and  lights,  etc.  used  underground  are  issued 
through  the  Mechanical  Department. 

The  supplies  issued  to  the  Mine  Department  are  reported  by  each 
shift  boss  on  Daily  Distribution  Sheets  46  showing  the  amount  used 
at  each  job,  the  timber  being  reported  as  to  pieces  and  sizes  in 
the  space  provided,  and  the  powder,  caps  and  fuse  being  copied  from 
the  Powder  Monkey's  Record  of  explosives  issued  to  each  place. 

The  amount  of  the  timber  shown  on  each  Daily  Report  is  converted 
into  board  feet  by  use  of  a  table  that  adds  sufficient  percentage  for  sawing, 
waste  and  blocks,  and  the  number  of  board  feet  for  each  class  of  timber 
is  entered  on  the  proper  Monthly  Distribution  Sheet,  47,  together  with 
the  number  of  sticks  of  powder  and  number  of  caps  and  feet  of  fuse. 

At  the  end  of  each  month  any  reasonable  discrepancy  between  timber 
and  explosives  as  charged  to  the  mine  by  the  Storekeeper  and  as  reported 


COST  ACCOUNTING  203 

by  Shift  Bosses  is  prorated  to  the  different  units  before  summarizing  the 
sheets. 

As  it  would  be  impracticable  to  distribute  the  tools  and  carbide  used 
underground  to  each  place,  and  as  the  amount  of  such  expense  that  would 
be  obtained  by  such  distribution  would  be  too  small  to  justify  the  labor 
of  segregation,  the  usual  practice  is  to  charge  the  tools  to  "General 
Underground,"  "Tools  and  Sundries."  and  the  carbide  to  "General 
underground,"  "Lamps  and  Carbide."  This  gives  the  total  of  such  ex- 
pense for  each  month  which  can  be  better  analyzed  and  watched  than  if 
pro -rated. 

All  other  supplies  issued  through  the  mechanical  and  other  depart- 
ments are  recorded  in  detail  upon  Supplies  Issued  Sheets  18. 

Check  of  Supply  Distributions. — A  check  of  supplies  issued  is  made 
by  comparison  of  inventory  of  stocks  against  the  Stock  Cards  (Form 
No.  17)  each  time  an  inventory  is  taken  of  outside  stocks,  or  each  time  a 
purchase  requisition  is  placed  for  supplies  of  warehouse  stocks.  Any  dis- 
crepancy between  stock  and  record  of  stock  should  be  covered  by  a 
requisition  obtained  from  the  proper  operating  head  in  case  of  shortage. 
The  matter  of  overage  can  be  adjusted  on  charge  tickets  issued  for  supplies 
requisitioned  in  the  future. 

As  a  further  check,  the  signed  requisitions  Form  No.  14  are  checked 
against  Supplies  Issued  Charge  Tickets  Form  No.  16,  and  then  the  signed 
requisitions  are  returned  to  each  department  which  issued  them. 

Summary  of  Supplies  Distributed — A  summary  of  supplies  distributed, 
as  shown  on  Forms  No.  47  and  No.  18,  is  made  in  regular  order  as  to 
expense  and  asset  accounts  and  to  indirect  disbursement  accounts  upon 
Form  Xo.  50,  in  the  same  manner  as  shown  for  Labor.  In  the  "Cost 
Data"  column  there  is  shown  for  each  account  the  amount  of  supplies  dis- 
bursed f  ron  each  of  the  mine  stocks  as  enumerated  on  Chart  of  Accounts 
XIV,  subsidiary  accounts  Nos.  131  to  139  inclusive. 

The  amount  of  Handling  is  pro-rated  over  the  charges,  as  explained  in 
General  Accounting  under  Supplies  Issued. 

Posting  the  Supplies  Distributed. — The  posting  of  supplies  distributed 
during  the  month  is  made  to  the  Cost  Segregation  Sheets  and  Cost  Ledger 
in  the  same  manner  as  done  with  the  labor  distributions.  The  supplies 
issued  for  Expense,  Prepaid  Expense  and  Asset  Accounts  are  posted  to 
the  proper  accounts,  while  the  supplies  issued  to  the  indirect  accounts  are 
posted   to  the  Shops  and  Power  Accounts. 

EXPENSE  DISTRIBUTION  OF  BILLS  AUDITED 

All  bills  are  audited  and  paid  by  the  Accounting  Department,  and  to 
avoid  duplication  the  distribution  of  the  Bills  Audited  Expense  is  made 
by    the  accounting  Department  upon  the  vouchers  and  entered  in  the 


204 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Bills  Audited  Record  at  the  same  time  that  the  vouchers  are  entered,  as 
illustrated  in  General  Accounting  under  Bills  Audited. 

In  small  organizations  the  accounting  and  costing  is  preformed  by  the 
same  force,  and  it  is  an  advantage  to  keep  the  segregation  of  expense  in 
the  Bills  Audited  Record.  Even  in  large  organizations  the  bills  audited 
expense  is  handled  in  the  same  manner. 

Therefore,  at  the  end  of  each  month  the  detail  segregations  shown  by 
the  Bills  Audited  Record  are  summarized  in  order  as  to  accounts  upon 
Form  No.  50  and  postings  are  made  to  the  Cost  Ledger,  and  compilations 
made  to  the  detail  cost  sheets  in  the  same  manner  as  done  with  labor  and 
Supplies. 


Summary 

of  Shop3  Distributio 

=0 

Cost 

Data 

|  (M  L 

i^er  Accts. 

Machine 

LUcknritl 

C-rpen.er 

Saw  Mill 

Sub-T<rf»l 

.:  Ami  1 

Credits 

0 

e  Extraction:  — 

til  51 

General  Underground. 

rQl" 

Tools  £  Sundries 

,'S 

■v. 

1 

-;<■:. 

i 

10 

J: 

ft 

Malnt  Sbalt  &  Drifts 

!  11,82 

Nations, 

tf/a 

" 

:;-, 

1 

Account      Keceivable 

M|    II 

Denn  Ariz  Copper  Co 

.{jie 

J.;- 

ff 

_L. 

Doak 

ice 

$0 

fioplaremeuts 

-it 

y'jU 

;■; 

Air  Line  to  Pumps 

9.461 

:  (6? 

Drill  SLarpeuur  Tools 

sipt 

■,.,. 

. 

'■■■ 

Fuse  Douse 

I  its 

IJJI.: 

11&41 

.Miue  Cars 

1660 

1660 

Steel 

lpi 

158 

Sorting  Platform 

\ 

-■' 

o- 

. 

—    Itc  — 

' 

1 

1 

1 

_uu 

prr 

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1  '  1 

R 

j 

t-l 

i 

I 

1    1 

1  s 

1 

Form  50- A. 
EXPENSE  DISTRIBUTION  OF  SHOPS 

The  summary  sheets  of  Shop  Labor,  Form  No.  49,  for  each  shop  having 
been  totalled  and  balanced,  as  explained  under  "  Expense  Distribution  of 
Labor,"  the  total  shop  labor  for  each  department  and  unit  account  is 
extended  into  the  "Total  Labor"  column,  and  the  total  of  this  column  is 
entered  at  the  top  of  the  sheet.  To  this  amount  is  added  the  proper 
proportion  of  "Overhead  Labor"  of  Foreman,  etc.,  the  amount  of 
supplies  consumed  by  each  Shop  consisting  of  tools  for  Machine  Shop,  coal 
and  oil  for  Blacksmith  Shop,  etc.,  and  the  amount  of  Bills  Audited 
Expense,  of  water,  light,  etc.  Thus  the  total  expense  for  each  Shop  is 
obtained  and  this  total  is  divided  by  the  total  Shop  Labor  and  a  factor 
obtained,  which  applied  to  each  item  in  the  "Total  Labor"  column  will 


COST  ACCOUNTING 


205 


give  the  "Total  Expense"  to  be  distributed  to  each  sub-department  and 
sub-department   unit  account  appearing  on  the  summary  sheet. 

Summary  of  Shop  Distribution. — The  summaries  of  each  of  the  Shop 
Sheets  are  then  entered  upon  Form  No.  50  in  the  manner  shown  by  Form 
No.  50-A,  and  postings  are  made  from  the  Summary  of  Shop  Distribution 
to  the  Cost  Ledger  and  detail  cost  sheets  as  with  the  other  expense. 


Summary  of  Repairs  Distribution 

o 

!_'  -; 

1      Coat 

Supplies   1      Shop!     1      D>ta 

Cott 

Accounts 

Gitnl  L  [d{er  A«t» 

Debits 

Credits 

a 

■  Extinction: 

1 

1|| 

6;i?\ 

Tramming  £  Tracks  I 

\ 

445  J 

Cars 

78 

73 

9* 

c: 

j 

173S 

Underground  Tracks 

9142 

.. 

h'?li 

Station  Tending  Sl  Caging; 

Q 

n 

i 

1484 

Chairs 

34 

fPl 

Wtl 

10394 

I 

Electric  Bells 

7-AC 

s 

50 

11090 

Hoisting; 

11. 

i 

4U25 

General 

as 

■it 

j: 

wi 

'■', 

ocso 

Cages 

: 

W191 

\8rro 

Dinky   Hoist 

11,11 

liic 

Top  Lauding  &  Tramming: 

I1 

| 

sops 

Surface  Tracks 

1130 

- 

■  '■: 

ffi? 

ibi 

Waste  Haulage  Car 

Hiss 

1292 

General  Underground; 

A 

'•I 

i 

Distributing  Supplies 

Vfa 

\tks 

I 

Water  *  Lights 

;< 

141S1 

19310 

Telephones 

Au9 

i&9 

-  Etc.— 

1 



— p 

. 

J- 

rm 

T— 

r~ 

r-rr 

— 

- 

| 

— 

__  c. 

T71 

r^ 

. 

1 

I 

- 

. 

1 

II    ILl. 

. 

ijj.. 

Form  50-5. 


EXPENSE  DISTRIBUTION  OF  REPAIRS 

While  the  Repairs  are  shown  as  a  Prepaid  Expense,  whenever  prac- 
ticable to  do  so,  the  Repair  Expense  should  be  closed  out  in  the  same 
month  that  the  repair  work  was  done.  Some  prefer  to  carry  the  repairs 
for  one  month  to  be  charged  out  the  next,  or  to  be  proportioned  over 
several  months. 

When  the  repair  work  is  large  and  covers  several  months,  it  is  some- 
times best  to  do  this,  in  order  to  distribute  the  repair  charges  evenly 
over  a  number  of  months,  as  done  with  replacements.  However,  as 
a  rule  the  repair  work  each  month  is  not  large  enough  to  unduly  fluctuate 
the  costs  and  should  be  closed  out  in  the  same  month  in  which  the  work 
was  done.     This  method  is  more  popular  with  the  operating  force. 


206  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Therefore,  the  amount  of  each  month's  labor,  supplies  and  shop 
charges  for  repairs  are  kept  separate  for  each  repair  job,  and  summarized 
upon  Form  No.  50  in  the  manner  shown  by  Form  No.  50-5,  making  a 
separate  summary  for  repair  charges  to  Power. 

Postings  are  made  in  the  same  manner  as  the  other  expense. 


EXPENSE  DISTRIBUTION  OF  REPLACEMENTS 

The  Replacements  consist  of  labor,  supplies  and  shop  charges  for  the 
replacement  of  minor  and  major  equipment,  of  mine  cars  and  other 
haulage  equipment,  hoist  cables,  sheave  wheels,  air  drills,  steel,  retubing 
boilers,  and  other  mine,  mill  and  smelter  equipment,  the  life  of  which 
is  less  than  the  average  life  used  for  all  equipment  in  setting  aside  depre- 
ciation reserve,  or  is  for  equipment  made  necessary  to  maintain  the 
normal  output  because  of  increased  length  of  haul  or  depth  or  workings, 
as  allowed  by  Article  222  of  Treasury  Department's  Regulations  No. 
45. 

Such  charges  each  month  are  made  direct  to  Replacement  Accounts 
which  are  cleared  by  charges  to  operating  expense  accounts  the  following 
month  for  minor  charges  and  pro-rated  over  several  months  for  major 
items. 

Some  mines  include  their  replacement  charges  in  the  labor  and 
supplies  charged  direct  to  expense  accounts.  However,  to  do  this  results 
in  wide  fluctuations  in  the  labor  and  supply  expense  from  month  to  month, 
and  in  confusion  to  those  in  charge  of  operations,  as  well  as  burying 
the  replacement  expense.  Also  such  procedure  makes  it  difficult  to 
analyze  the  operating  labor  and  supply  costs  and  leads  to  indifference 
on  the  part  of  the  operating  heads  to  large  fluctuations  in  costs,  which 
are  attributed  to  replacement  charges  having  been  included  and  the 
matter  dismissed  without  further  consideration. 

The  replacement  expense  should  be  kept  separate  from  the  regular 
operating  expense  in  order  that  it  may  be  known  whether  or  not  it  would 
be  more  profitable  to  discard  the  present  equipment  entirely  for  some- 
thing better,  or  whether  the  equipment  is  being  abused.  Also,  by  segre- 
gating the  replacement  charges  from  the  direct  operating  expense  any 
fluctuations  in  the  latter  creates  an  interest  as  to  the  reason  therefor 
which  can  be  quickly  ascertained  from  the  detail  statements  of  cost  and 
production. 

The  replacement  charges  on  the  books  the  first  of  each  month  are 
analyzed  and  the  total  of  minor  charges  and  the  proper  proportion  of 
major  charges  are  summarized  upon  Form  No.  50  and  postings  made  to  the 
Cost  Ledger  and  detail  cost  sheets  in  the  same  manner  as  done  with  the 
other  expense. 


COST  ACCOUNTING  207 

EXPENSE  DISTRIBUTION  OF  POWER 

The  detail  of  the  Power  Expense  as  shown  upon  the  General  Ledger 
is  recorded  upon  the  Cost  Ledger  for  each  power  unit  of  Boilers,  Air 
Compressors,  Air  Drills,  etc.,  and  distribution  of  the  expense  of  each 
is  made  separately. 

Boilers. — The  distribution  of  the  expense  of  the  Boilers  or  Steam 
Plant  is  made  according  to  the  amount  of  steam  furnished  the  different 
units  of  equipment  such  as,  compressors,  hoist,  pumps,  etc.,  and  as  used 
for  heating.  This  distribution  is  furnished  at  the  end  of  each  month 
usually  by  the  Mechanical  Department. 

Air  Compressors. — The  expense  of  the  Air  Compressors  is  distributed 
according  to  the  air  consumed  by  the  several  operating  units,  such  as  air 
drills,  pumps,  etc.,  as  reported  by  the  Mechanical  Department  each 
month. 

Air  Drills. — The  Air  Drill  expense  is  composed  of  upkeep  of  each  drill, 
air  lines,  hose  and  fittings  and  general  expense  of  new  steel,  sharpening 
old  steel,  wrenches,  etc.  This  expense  is  distributed  to  the  cost  accounts 
according  to  the  hours  air  used,  which  are  reported  on  Form  No.  46.  Each 
shifter  keeps  a  list  of  the  machines  on  his  run,  giving  the  make  and  shop 
number,  and  he  reports  each  day  the  number  of  hours  each  machine 
used  air.  The  shop  number  on  each  machine  is  according  to  the  amount 
of  air  capacity.  The  amount  of  air  hours  for  each  place  is  entered  on 
Form  No.  47  for  each  place  and  the  amount  of  air  hours  each  machine  was 
operated  is  again  entered  each  day  opposite  the  name  of  the  machine  on 
the  Air  Drill  Record  using  Form  No.  49. 

At  the  end  of  each  month  the  air  hours  compiled  on  Forms  No.  47  for  all 
accounts  are  totalled  and  the  amount  divided  into  the  total  Air  Drill 
Expense,  and  the  rate  per  hour  thus  obtained  is  applied  to  the  total 
hours  for  each  account  and  the  amount  of  the  Air  Drill  Expense  for  each 
account  is  obtained. 

Electric  Plant. — The  total  amount  of  Electric  Plant  Expense  is 
distributed  by  dividing  the  total  kilowatt  hours  of  electricity  consumed 
by  all  the  different  units  of  the  plant  as  shown  by  meter  readings  into  the 
Electric  Plant  Expense,  and  the  cost  per  kilowatt  hour  thus  obtained  is 
used  to  distribute  the  expense  to  each  unit  according  to  the  amount  of 
electricity  consumed. 

Summary  of  Power  Distribution. — The  detail  of  the  Power  Expense 
is  made  on  Forms  No.  50  in  the  following  order: 

1.  Boilers, 

2.  Compressors, 

3.  Air  Drills. 

The  distribution  of  the  Boiler  or  Steam  Plant  Expense  is  made 
first,  the  Compressor  Expense  is  distributed  second,  and  the  Air  Drill 


208  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Expense  last.  This  is  necessary  on  account  of  the  boilers  furnishing 
steam  to  the  compressors  and  the  compressors  furnishing  air  to  the  air 
drills. 

A  summary  is  then  made  of  the  charges  to  the  cost  accounts  in 
the  same  manner  as  illustrated  on  Form  No.  50-A,  for  Shops,  and  postings 
are  made  of  the  details  to  the  segregated  cost  sheets  for  Power  Accounts, 
and  of  the  summary  totals  to  the  Cost  Ledger. 

DISTRIBUTION  OF  SUSPENSE  ITEMS,  ETC. 

In  order  that  the  cost  record  may  be  complete  and  fully  support 
the  general  accounting  records,  it  is  necessary  to  make  up  on  Form  No.  50 
a  monthly  summary  of  the  distribution  of  Suspense  Items,  Accrued 
Expense,  and  Miscellaneous  Operating  Charges  and  Credits,  to  the 
departmental  expense  and  asset  accounts,  as  illustrated  in  General 
Accounting  under  "Distribution  of  Accrued  Disbursements,"  and 
"Miscellaneous  Charges  and  Credits." 

All  the  elements  of  expense  having  been  distributed  to  the  cost 
accounts,  it  is  next  in  order  to  determine  the  development  overhead 
expense  and  to  distribute  the  departmental  overhead  expense,  if  the 
pro-rated  method  of  cost  determination  is  used. 

DETERMINING  THE  DEVELOPMENT  OVERHEAD 

The  expense  of  mining  divides  itself  into  two  general  divisions  of 
Exploration  and  Development  and  of  Ore  Extraction.  The  Exploration 
and  Development  Expense  prior  to  a  mine  becoming  a  producer  is  all 
of  the  expense  at  the  mine  and  is  charged  to  Property  Account  and  is 
pro-rated  when  production  has  commenced  to  production  through  the 
depletion  charge.  However,  after  the  mine  has  reached  the  production 
stage,  it  is  customary  to  include  the  exploration  and  development  expense 
incidental  to  maintaining  and  enlarging  the  known  ore  reserves  as  part 
of  the  cost  of  mining,  especially  that  part  of  the  development  work 
that  is  carried  on  by  the  same  force  and  organization  as  look  after  the 
Ore  Extraction. 

Theoretically  a  certain  proportion  of  the  expense  of  each  of  the  sub- 
departments  of  Ore  Extraction,  except  Stoping,  is  chargeable  to 
Exploration  and  Development,  and  whenever  the  Development  Expense 
is  being  charged  to  Property  Account,  the  correct  proportion  of  the 
expense  of  Tramming  and  Tracks,  Station  Tending  and  Caging,  Hoisting, 
etc.,  should  be  determined  and  the  sub-departments  of  Ore  Extraction 
credited  and  ''Exploration  and  Development,  Development  Overhead," 
should  be  charged. 

There  are  several  methods  of  determining  what  shall  be  charged 
to  Development.     One  is  to  divide  the  total  shifts  of  development  work 


COST  ACCOUNTING  209 

by  the  total  shifts  of  work  in  the  mine,  and  apply  the  factor  so  obtained 
to  the  expense  of  each  of  the  sub-departments  of  Ore  Extraction,  except 
Stoping,  and  to  credit  each  sub-department  and  charge  Development 
Overhead  with  the  amounts  so  obtained.  Another  method  is  to  obtain 
the  factor  to  be  used  by  dividing  the  total  cars  of  ore  and  waste  into  the 
cars  of  waste.  Still  another  method  is  to  keep  the  expense  of  each  sub- 
department  segregated  into  expense  for  development  and  expense  for 
ore  extraction  whenever  possible,  such  as  tramming  and  tracks,  etc., 
and  to  pro-rate  the  expense  of  those  sub-departments  that  cannot  be 
so  segregated. 

While  it  is  theoretically  correct  to  do  this,  even  when  the  total 
Exploration  and  Development  Expense  is  being  charged  against  current 
production,  so  to  do  does  not  change  the  total  mining  costs,  but  simply 
decreases  the  Ore  Extraction  Expense  and  increases  the  Exploration  and 
Development  Expense  a  like  amount. 

There  is  really  nothing  gained  in  determining  the  development 
overhead  when  the  total  of  the  Exploration  and  Development  Expense  is 
being  charged  to  current  production.  The  labor  and  expense  involved 
in  making  the  segregations  to  determine  Development  Overhead,  the 
complication  of  the  costs  to  the  operating  man,  and  the  delay  in  obtaining 
the  costs,  more  than  offsets  any  theoretical  value  attached  to  the  deter- 
mining of  this  Overhead  charge.  At  best  it  is  only  an  averaged  charge 
and  many  times  part  of  the  charge  is  fictitious  as  certain  of  the  expense 
would  go  on  even  though  there  were  no  development  work.  However, 
the  pro-rating  of  the  expense  between  Development  and  Ore  Extraction 
is  a  fixed  part  of  the  cost  procedure  of  some  of  the  larger  mines  who  will 
probably  continue  the  method,  until  they  are  convinced  that  the  cost 
of  making  the  change  will  be  more  than  offset  by  the  benefits. 

DISTRIBUTING  THE  OVERHEAD  EXPENSE 

The  Overhead  Expense  of  mining  consists  of: 
Departmental  Overhead,  and 
General  Overhead. 

When  the  mine  is  producing  only  one  principal  product,  there  is  no  need 
to  distribute  any  of  the  overhead  expense,  either  departmental  or  general. 
However,  when  there  are  two  or  more  separate  products  which  are  pro- 
duced and  sold  separately,  it  is  then  necessary  to  distribute  the  overhead 
expense.     This  is  best  done  at  the  mine  on  a  tonnage  basis. 

It  is  the  practice  of  some  mines  to  classify  the  expense  of  each  depart- 
ment into  direct  or  productive  accounts  and  indirect  or  non-productive 
accounts,  and  then  to  distribute  the  expense  of  the  indirect  or  non- 
productive accounts  over  the  direct  or  productive  accounts. 

This  results  in  additional  segregation  expense,  complication  of  the 
u 


210  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

costs  and  delays  the  time  in  which  the  cost  data  can  be  delivered  to 
the  operating  heads.  There  is  no  real  benefit  obtained  from  this  pro- 
rating of  the  indirect  departmental  expense,  as  the  total  department 
expense  is  the  same  in  both  cases.  However,  this  method  is  popular  with 
some  mines,  and  having  become  established  and  the  operating  heads 
having  become  familiar  with  the  costs  so  presented,  the  method  will 
probably  be  continued. 

COST  FACTORS 

The  factors  used  in  obtaining  mining  costs  consist  of: 

1.  Production  Factors,  and 

2.  Operating  Factors, 

which  must  be  carefully  compiled,  if  accurate  costs  are  to  be  obtained. 
Production  Factors. — The  production  factors  are  three  in  number, 
as  follows: 

1.  Ton  of  Ore  Mined  and  Treated, 

2.  Pound  of  Refined  Base  Metals, 

3.  Ounce  of  Refined  Precious  Metals. 

The  production  factors  are  used  in  obtaining  the  Profit  and  Loss  Cost. 
That  is,  to  determine  whether  or  not  the  business  as  a  whole,  or  any 
department,  is  operating  at  a  profit  or  a  loss.  The  ton  cost  is  also 
used  for  some  departments  as  an  efficiency  cost.  As  a  rule,  however, 
the  operating  factors  will  give  a  better  efficiency  cost  than  the  tonnage 
cost. 

Compiling  the  Tonnage  Factors. — Copy  of  the  daily  assay  reports  of 
contents  of  ores  mined  as  shown  by  Form  No.  19  is  furnished  the  Cost  De- 
partment, and  the  number  of  cars  of  ore  shown  thereon  from  each  place 
is  compiled  on  Underground  Distribution  Sheets  (Form  No.  47).  The 
actual  weight  of  ore  shipped  each  month  plus  the  estimated  weight  of  ore  in 
bins  the  last  of  month,  less  weight  of  ore  in  bins  the  first  of  month,  is 
divided  by  the  number  of  cars  of  ore  mined.  The  factor  so  obtained  is 
applied  to  the  total  cars  from  each  place  and  the  total  tons  thereby  ob- 
tained. If  ores  of  different  weight  and  character  are  mined  their  weight 
is  determined  separately,  and  the  proper  factor  is  applied  to  the  cars 
obtained  from  each  place.  A  similar  method  is  followed  in  obtaining 
the  tonnage  of  ores  milled  and  smelted.  For  ores  transported,  the 
actual  weights  of  course  are  taken.  As  a  check  upon  these  weights  the 
ore  as  taken  from  each  stope  in  mine  cars  should  be  weighed  once  each 
six  months. 

Summary  of  Tonnage  Factors. — The  tonnages  for  the  different  de- 
partments having  been  ascertained,  a  summary  for  use  in  costing  and  of 
taking  up  the  production  in  process  and  on  hand  upon  the  books,  is  made 
as  follows: 


COST  ACCOUNTING 


211 


Summary  of  Ore  Tonnages 
Year— 1918 


Lead  Ores,  Tons 


Wet 


Dry 


Copper  Ores,  Tons 


Wet 


Dry 


In  Bins  1-1-18 

From  Second  Class  Dump 

Stoped  (Less  Second  Class) 

From  Development  and  Repairs . 

Totals 

Remaining  in  Bins  12-31-18 

Shipped  (Lead  Estimated) 

At  Smelter  and  in  Process  1-1-18 

Smelted  and  Treated 

At  Smelter  12-31-18 

At  Mill  and  On  Track 

In  Process 

At  Smelter  12-31-18 

Hand  Sorted 


50.000 

28,356.000 

1,637.060 

30,043.060 

224.000 

29,819.060 

248.830 
30.067.890 
29,244.230 

823.660 

668.000 
50.000 
48.000 
57 . 660 


48.610 

27,690,854 

1,586,172 

29,325.636 

219.520 

29,106.116 

242.380 

29,348.496 
28,549.546 
798.950 

647.960 
48.500 
46.608 
55.882 


353.000 

108 . 140 

93,617.000 

7,970.910 

102,049.050 

322.000 
101,727.050 

358.500 
102.085.550 
101.834.960 

250.590 


326.702 

104.928 

86,503.764 

7,358.297 


94,324.089 

94,091.667 

232.422 


Summary  of  Final  Production  Factors. — Generally  the  tonnage  factors 
are  used  for  departmental  costs  of  mining,  milling,  smelting  and  trans- 
portation, and  sometimes  as  in  the  case  of  iron  ore  and  coal,  the  ton  factor 
is  the  final  cost  factor.  However,  in  the  case  of  metals  other  than  coal 
and  iron  et  al,  the  final  production  factor  is  the  pound  for  base  metals  and 
ounce  for  precious  metals.  Therefore,  in  the  case  of  metal  mines,  the 
recoverable  contents  of  each  ton  of  ore  must  be  obtained.  In  the  case  of 
base  metal  mines,  the  precious  metal  by-products  are  treated  as  a  credit, 
while  in  precious  metal  mines,  the  base  metal  by-products  are  treated  as 
credits. 

The  time  of  determinating  the  final  production  factor  is  a  matter  that 
must  be  settled  first.  In  the  case  of  those  mines  that  smelt  and  refine 
their  products,  if  the  final  production  factor  is  not  determined  until  the 
refined  metal  is  produced,  the  final  cost  will  be  obtained  from  3  to  4 
months  after  the  ore  is  produced,  and  only  that  portion  of  the  expense 
applicable  to  the  refined  metal  produced  can  be  used,  the  remainder  being 
held  in  suspense.  This  delay  in  obtaining  final  costs  and  the  complicated 
bookkeeping  involved  is  not  desirable.  Therefore,  it  has  become  the 
practice  to  treat  the  smelting  and  refining  as  separate  departments  and 
to  make  a  flat  or  sliding  scale  charge  both  for  smelting  and  refining  and  to 
agree  upon  fixed  deductions  for  smelter  and  refinery  losses,  so  that  the 
final  production  factors  for  costs  and  credits  can  be  determined  as  soon  as 
the  ores  or  concentrates  have  been  sampled  by  the  smelter,  and  assay 
contents  thereof  have  been  agreed  upon. 

This  enables  the  final  production  factors  for  costs  and  credits  to  be 
determined  and  the  final  cost  to  be  obtained  at  the  end  of  each  month, 


212 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


leaving  only  that  portion  of  ore  and  concentrates  in  suspense  that  has  not 
been  sampled  by  the  smelter. 

Each  month  as  the  shipments  to  the  smelter  are  sampled  and  assays 
agreed  upon  the  final  production  factors  are  determined  and  complied 
upon  Form  No.  26  for  principal  production  and  upon  Form  No.  29  for 
secondary  production  and  summaries  of  production  factors  for  costs  and 
credits  are  made  up,  as  follows : 

Analysis  of  Ores  Sampled  for  Smelting 
Principal  Production 


Tonnage 

Rec'y  Contents  Per  Dry  Ton 

Grade 

Wet 

Per  cent 
Moisture 

Dry 

Ounces 
Silver 

Ounces 
Gold 

Per  cent 
Copper 

Oxide 

98,852.97 

2,891.77 

90.22 

7.76 
2.43 
1.15 

91,181.034 

2,821.450 

89.183 

1.160      0.0127        4.07 

Hi-Grade 

19.154  !  0.0205     28.98 

Hi-Grade  Special . . 

15.96     >  0.0351 

15.30 
4.83 

Totals 

101,834.96 

7.60 

94,091.667 

1.714     0.0130 

Recoveries  from  Ores  Sampled  and  Smelting 
Principal  Production 

Per  Wet  Ton 

Per  Dry  Ton 

Total 

Gold 

0.0120 

1 . 5832 
f  89.1800  1b. 
\    4.4600  percent 

0.0130 
1.7135 
96.52001b.            1 
4 .  8300  per  cent  J 

1,220. 12  oz. 

Silver 

161,230.00  oz. 

Copper 

9,081,959.00  1b. 

Analysis  of  Production  Credits 
Principal  Production 


Per  Dry  Ton 


Per  Pound 
Copper 


Total 


1,220.12  oz.  Gold  at  $20. 00 1       0.2594  0.00269 

161,230.00  oz.  Silver  at  0.9778  cts 1.6755  0.01736 

Refunds  and  Discounts,  Etc |       0 .  0529  0 .  00055 


1.9878 


0.02060 


24,402.40 

157,647.29 

5,126.89 


187,171.58 


Summary  of  Ore  and  Concentrates  Smelted 
Secondary  Production 


Per  cent 
Moisture 

Dry  Tons 

Recovery  Contents  Per  Dry  Ton 

Ounces 

Per  cent 

Gold     j     Silver 

Lead    [Iron  Lime    Insolubles 

Mill  Concentrates.  . 
Ore  Shipments 

11.10 
2.65 

2,926.06    0.2426    22.76 
1,213.30     0.1086      5.03 

32.06      17.14        22.33 
21.16     18.25    |    36.93 

COST  ACCOUNTING 


213 


Recoveries  from  Ores  and  Concentrates  Smelted 
Secondary  Production 


Ounces 

Pounds 

Gold 

Silver 

Lead 

Copper 

Mill  Concentrates  . 

709.47 
7.73 
3.16 
720.36 
131.60 
851.96 

66,592.0 
606.0 

1,423.0 
68,621.0 

6,103.0 
74,724.0 

1,876,240 
31,186 

480 l 

Sorted  Lead  Ore 

Sorted  Lead-Copper  Ore 

27  290 ' 

Mill  Production 

1,907,426 

513,264 

2,420,690 

27  770 l 

Direct  Shipments 

Total  Production 

27,770* 

1  Credited  to  Lead  and  included  in  Principal  Production  of  Copper. 


Analysis  of  Production  Credits 

Year— 1918 

Secondary  Production 


Pounds 
Lead 


Per  Pound 
Lead 


Total 


Gold,  709.47  oz.. 
Silver,  66,592  oz. 
Sorted  Lead  Ore . 


Total  Mill  Credits 1 ,907,426 

Direct  Ore  Shipments,  Net !       513,264 

Total  Credits '  2,420,690 


0.00744 
0.03527 
0.00333 

0.04604 
0.04471 


$  14,189.02 

67,277.31 

6,356.09 

$  87,822.42 

20,423.07 

$108,245.49 


OPERATING  FACTORS 

As  a  rule  there  is  a  certain  factor  of  production,  consumption  or 
operating  movement  for  each  unit  of  operation  or  equipment  that  is 
the  correct  unit  of  measurement  of  efficiency  and  cost,  as,  for  instance,  for: 

Drifting,  Raising  and  Sinking The  feet  advanced. 

Stoping The  tons  hroken. 

Tramming Cars  per  1,000  feet. 

Hoisting Cars  hoisted. 

Top  Landing Cars  landed. 

Pumping Gallons  pumped. 

Assaving Assay  units  determined. 

Supervision Shifts  supervised. 

j  Gallons  water  evaporated. 

Boilers |  Barrels  oil  consumed. 

Air  Drills Air  hours. 

etc. 


214  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

These  operating  units  should  be  carefully  compiled  and  recorded 
in  the  spaces  provided  therefor  on  Form  No.  52.  As  a  rule  operating 
information  of  more  value  can  be  obtained  from  the  efficiency  statements 
worked  up  on  these  units  than  can  be  gotten  from  the  cost  statements. 
For  instances,  the  feet  advanced  per  man  shift  in  drifts,  raises,  etc., 
gives  more  valuable  information  to  the  operating  man  than  cost  per  foot, 
especially  when  accompanied  with  statements  of  timber  and  of  powder 
per  foot  advanced. 

The  increase  or  decrease  in  wages,  or  cost  of  supplies,  will  fluctuate 
the  cost  per  foot  and  is  something  over  which  the  foreman  or  boss  has  no 
control.  However,  the  advance  per  shift  and  the  powder  and  timber 
per  foot  are  matters  for  which  the  supervisor  is  responsible,  and  are 
units  of  measurement  which  he  can  understand  and  utilize. 

Standardization  in  the  determinations  of  operating  units  and  the 
compiling  of  the  expense  and  operating  data  in  a  uniform  manner  by 
all  mines  would  result  in  great  benefit  to  the  mining  industry  in  establish- 
ing standards  of  achievement  and  educating  supervisors  as  to  what 
are  standard  results. 

TIME 

The  remaining  principle  to  be  considered  in  compiling  cost  data  is 
Time.  There  must  be  decided  not  only  what  costs  shall  be  kept,  but 
also  what  periods  of  time  each  cost  shall  cover.  It  is  best  so  to  compile 
the  cost  data  that  costs  may  be  readily  taken  from  the  records  for  each 
month,  for  the  year  to  date  and  for  each  year  with  the  least  possible 
effort.  Also,  where  there  are  wide  fluctuations  in  certain  costs  from 
day  to  day,  or  where  it  is  necessary  to  have  the  cost  each  day  or  each 
week  in  order  to  maintain  the  efficiency,  the  cost  data  should  be  compiled 
so  that  daily  and  weekly  costs  can  be  obtained  with  least  lost  of  time, 
expense  and  effort. 

I  am  inclined  to  the  opinion  that  monthly  costs,  if  obtained  within 
a  few  days  after  the  close  of  each  month,  are  sufficient  in  all  cases,  and 
that  daily  statement  of  production  units  per  man  shift,  etc,  give  all 
information  necessary  to  maintain  efficiency  and  are  of  more  value  than 
daily  costs  which  can  never  be  complete  nor  accurate  except  for  labor 
and  supplies,  and  in  numerous  cases  not  even  accurate  for  these  two  items. 


CHAPTER  XXIII 

COMPILING  THE  COSTS 

Having  established  a  Chart  of  Cost  Accounts  to  conform  to  the 
Units  of  the  Organization  and  distributed  the  Elements  of  Expense 
thereto,  and  having  compiled  the  Production  and  Operating  Factors, 
for  the  periods  of  time  in  which  costs  are  to  be  determined,  it  is  then 
possible  to  compile  the  costs  in  as  detail  a  matter  as  desired. 

KINDS  OF  COSTS 

The  Costs  that  are  usually  compiled  by  mines  consist  of  six  groups 
as  illustrated  by  Chart  XV,  as  follows: 

1.  Total  Production  Costs, 

2.  Departmental  Production  Costs, 

3.  Departmental  Unit  Costs, 

4.  Shops  and  Power  Costs, 

5.  Prepaid  Costs, 

6.  Asset  Costs. 

Of  course,  there  are  the  Estimated  Costs  made  by  the  Engineering  and 
Mechanical  Departments  of  proposed  construction,  etc.  However,  such 
estimated  costs  are  not  entered  upon  the  accounting  records,  but  are  used 
by  the  manager  and  directors  when  deciding  whether  or  not  certain  work 
shall  be  done.  When  new  work  is  to  be  done,  the  bills  of  material 
accompanying  these  estimated  costs  are  used  by  the  Purchasing 
Department  in  placing  orders  for  materials. 

Production  Costs. — The  Production  Costs  consist  of: 

Total  and  Net  Products  Costs,  and 

Departmental  Production  Costs. 

The  total  Production  Cost  is  the  total  cost  without  consideration 
of  credits  for  by-products,  refunds  and  discounts  and  miscellaneous 
administrative  and  operating  production  earnings. 

The  Net  Production  Cost  is  the  total  cost  less  the  credits.  The 
Departmental  Production  Cost  is  the  production  cost  for  each  department 
of  administration  and  operation. 

Total  and  Net  Production  Costs. — As  each  month's  results  are 
determined  by  the  Operating  Department,  a  complete  statement  of 
accounts,  showing  total  production  costs  and  credits,  etc.,  as  well  as 
production   is   forwarded   to   the   Administrative   Department.     Upon 

215 


216 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


a 

o 

o 

O 
O 

a. 

i 

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O 
O 

o 

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o 

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5: 

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COMPILING   THE  COSTS  217 

receipt  of  this  statement  the  Administrative  Books  have  been  closed  for 
the  month  and  a  total  and  net  production  cost  can  be  obtained.  How- 
ever, as  the  accrued  federal  taxes  are  usually  determined  and  taken  up  on 
the  Administrative  Books  only  at  the  end  of  each  quarter  and  at  the  close 
of  the  year,  the  total  and  net  production  costs  are  generally  determined 
only  at  the  end  of  the  quarterly  and  yearly  periods. 

As  soon  as  the  Operating  Books  are  closed  at  the  end  of  each  year, 
and  before  all  the  costs  are  determined,  a  statement  of  operating  accounts 
and  of  production  is  forwarded  to  the  Administrative  Department  and 
this  statement  of  operating  accounts  is  taken  up  on  the  administrative 
records  and  the  Income  Account  and  Balance  Sheet  is  made  out,  as  ex- 
plained under  Administrative  Accounting. 

As  a  complete  statement  of  accounts  is  then  in  possession  of  the 
Administrative  Department  showing  the  total  production  charges  and 
credits  a  statement  of  total  and  net  production  costs  for  the  year  can 
be  obtained  before  the  detail  operating  costs  are  received. 

To  obtain  the  total  costs  when  there  is  only  one  product  produced  a 
statement  of  the  total  charges,  as  shown  by  the  Income  Account,  is 
made  up  and  divided  by  the  total  production  units,  and  to  obtain  the 
net  production  cost  the  amount  of  the  credits  is  subtracted  from  the 
total  charges  and  the  remainder  divided  by  the  total  production  units. 

When  there  is  a  secondary  production  as  well  as  a  principal  produc- 
tion, or  more  than  one  product  produced,  the  total  amount  of  the  admin- 
istrative charges  must  be  pro-rated  to  each  product,  as  shown  by  a 
statement  of  charges  taken  from  the  Administrative  Books,  as  follows: 

Principal  Secondary  Total 

Production  Production  Expense 

Operating  Expense $1,516,189.88  $250,882.50  $1,767,072.38 

Administrative  Expense 83 ,  801 .  64  83 , 801 . 64 

Federal  Taxes 38,410.67  38,410.67 

Depreciation  of  Equipment 18,000.00  18,474.50  36,474.50 

Depletion  of  Mine  Investment. .  176,614.62  6,102.46  182,717.08 

Total $1,833,016.81  ?275,459.46  $2,108,476.27 

By  reference  to  the  Individual  Operating  Profit  and  Loss  Statements 
for  Copper  and  Lead  which  support  the  Combined  Operating  Profit  and 
Loss  Statement  as  illustrated  on  page  147,  it  is  found  that  there  was  a 
loss  of  $12,064.21  on  the  secondary  production  of  lead.  Therefore  as 
there  was  no  income  from  the  lead  production,  all  of  the  federal  taxes 
are  charged  to  copper  production.  As  there  were  no  funds  from  lead 
turned  over  to  the  Administrative  Department,  and  no  service  performed 
by  the  latter  department  for  the  lead  production,  all  of  the  general 
administrative  expense  is  charged  to  copper.  Of  course,  when  the 
secondary  production  shows  a  profit,  the  proper  amount  of  federal  taxes 
and  of  administrative  expense  will  be  pro-rated  to  it  according  to  the 


218  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

percentage  that  the  secondary  income  is  to  the  total  income.  However, 
the  proper  proportion  of  depreciation  and  depletion  of  investment  is 
distributed  each  to  the  principal  and  to  secondary  production. 

When  the  depletion  charge  is  based  upon  Discovery  Value  or  Value 
as  of  March  1st,  1913,  which  is  in  excess  of  investment  value,  only  the 
amount  representing  the  depletion  of  investment  should  be  used  to  get 
the  cost  of  depletion. 

Referring  to  the  operating  production  records  of  the  principal  and 
secondary  products  and  credits  summaries  of  which  are  shown  on  pages 
212  and  213,  and  copies  of  which  have  been  furnished  the  Administrative 
Department,  we  find  that  the  total  production  factors  are,  as  follows: 

Pounds 
Copper  Lead 

Principal  Product 9,081 ,959 

Secondary  Product 2,420,690 

and  that  the  total  operating  credits,  are: 

For  Principal  Production $187,171.58 

For  Secondary  Production 108 ,245 .  49 

By  reference  to  the  Administrative  Ledger,  we  find  that  the  only 
administrative  credit  is  Interest  on  Bank  Deposits  amounting  to 
$23,051.55,  all  of  which  is  applicable  to  the  principal  production,  as  the 
secondary  production  had  no  funds  on  which  to  collect  interest.  There- 
fore by  summarizing  the  operating  and  administrative  expense  and 
credits  that  have  been  ascertained,  from  the  Administrative  Books  and 
Operating  Reports  and  applying  the  production  factors  thereto,  there  is 
obtained  Total  and  Net  Production  Costs  for  both  Principal  and  Second- 
ary Production,  as  follows: 


Total  and  Net  Production  Costs 
Year— 1918 


Per  Pound  of  Principal 
Product 

Per  Pound  of  Secondary 
Product 

Total 

Per  Pound 

Total          Per   Pound 

Operating  Expense 

Administrative  Expense 

$1,516,189.88 
316,826.93 

$0.16695 
0.03488 
0.20183 
0.02061 
0.00254 
0.02315 

$0.17868 

$250,882.50 

24,576.96 

275,459.46 

108,245.49 

108,245.49 
$167,213.97 

$0.10364 
0.01015 

Total 

1,833,016.81 

187,171.58 

23,051.55 

0.11379 

Operating  Credits 

0 . 04472 

Administrative  Credits 

Total  Credits 

210,223.13 
$1,622,793.68 

0  04472 

Net  Total 

$0  06907 

Total  Production 

9,081,959.00 

2  420  690  0 

Pounds  Per  Ton  Ore 

492  n 

Pounds  per  Ton  Concentrates . 

1 

541.2 

COMPILING  THE  COSTS  219 

When  both  the  Operating  and  Administrative  Records  are  kept 
by  the  same  force,  the  total  and  net  production  costs  are  obtained  at 
the  same  time  as  the  detail  operating  costs.  However,  when  there  is  a 
separate  Administrative  Department  the  total  costs  are  ascertained  by 
the  Administrative  Department. 

This  total  and  net  production  cost  is  furnished  the  directors  and 
officers  as  soon  as  possible  after  the  close  of  each  period  and  is  a  concise 
statement  that  can  be  easily  compared  with  past  results  to  locate  any 
fluctuations  either  in  the  operating  or  administrative  expense  and  cost. 
In  order  that  it  may  be  readily  seen  whether  increases  or  decreases  in 
cost  are  due  to  increase  or  decrease  in  expense,  in  total  production,  or 
in  recovery  per  ton,  a  summary  of  production  and  recovery  is  shown 
below  the  statement  of  costs. 

Such  a  simple  statement  of  costs  can  be  easily  remembered  and  is 
of  great  value  when  used  for  comparison  with  market  price  of  metal, 
and  for  reference  in  determining  policy  of  production  operations  and 
dividend  disbursements,  etc. 

However,  to  thoroughly  understand  fluctuations  in  the  operating 
and  administrative  costs  it  is  necessary  to  have  statements  of  greater 
detail  than  the  statement  of  Total  and  Net  Production  Costs. 

PRODUCTION  DIVISION  COSTS 

It  is  necessary  to  obtain  separate  costs  of  each  division  of  adninis- 
tration  and  operation  for  each  period  for  comparison  with  previous 
periods,  so  as  to  know  in  what  department  any  increase  or  decrease 
occurred,  and  the  reason  therefor. 

The  production  division  Costs  consist  of  two  groups  to  correspond 
with  the  two  divisions  of 

Administration,  and 
Operation, 

as  shown  by  Chart  XI,  as  well  as  Chart  XIII. 

Administrative  Production  Costs. — The  expense  of  each  of  the  depart- 
ments of  administration  is  kept  in  the  General  Administrative  Ledger 
and  not  in  the  Cost  Ledger,  which  usually  is  confined  to  recording  the 
expense  of  the  Operating  Departments,  Sub-departments,  etc.,  unless 
both  the  Administrative  and  Operating  Records  are  kept  by  the  same 
force,  when  the  expense  of  Administration  may  be  recorded  in  the  Cost 
Ledger. 

To  obtain  the  Administrative  Departmental  Costs,  the  total  expense 
of  each  department,  and  the  credits,  are  compiled  and  distributed  to  the 
principal  and  to  the  secondary  production,  if  any,  as  illustrated  under 
Total  and  Net  Production  Cost,  and  the  total  of  the  production  units  is 


220  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

then  divided  into  the  amount  of  expense  of  each  department  and  into  the 
amount  of  the  credits  as  shown  by  the  following  statements: 

Total  Administrative  Production  Cost  of  Principal  Production  of  9,081,959 
Lb.  of  Copper — Year  1918 

Cost  per  Total 

Department  Account  Pound  Copper  Expense 

General  Administration $0.00923  $  83,801 .64 

Federal  Taxes 0.00423  38,410.67 

Depreciation  of  Equipment 0.00198  18,000.00 

Depletion  of  Mine  Investment 0. 01945  176,614.62 

Total  Administration $0.03489  $316,826.93 

Credits 

Interest  on  Bank  Deposits $0.00254  $  23,051.55 

Net  Total  Administration $0.03235  $293,775.38 

Total  Administrative  Production  Cost  of  2,420,690  Lb.  of  Secondary  Produc- 
tion of  Lead — Year  1918 

Cost  per  Total 

Account  Pound  Lead  Expense 

General  Administration $           0 .  00 

Federal  Taxes 0 .  00 

Depreciation  of  Equipment $0 .  00763  18 ,474 .  50 

Depletion  of  Mine  Investment 0.00252  6,102.46 

$0.01015  $24,576.96 

The  Administrative  Expense  consists  of  fixed  charges,  except  "General 
Administration,"  and  only  the  latter  account  is  analyzed  any  further 
than  shown  by  the  above  statements. 

There  should  accompany  the  statement  of  Administrative  Production 
Costs,  the  detail  of  General  Administrative  Expense.  It  is  not  necessary 
to  detail  the  other  charges,  except  that  in  the  report  transmitting  the 
statement  of  costs,  there  should  be  stated  the  rate  of  charge  for  depreci- 
ation and  depletion,  and  what  amount  of  the  Federal  taxes  is  for  Income, 
Excess  Profits,  Capital  Tax,  etc. 

Operating  Production  Costs. — The  Operating  Departmental  Pro- 
duction Costs  are  the  costs  of  production  for  each  department.  These 
costs  are  summarized  in  concise  form  for  the  use  principally  of  the 
manager,  and  are  determined  upon  the  final  production  unit  of  pound  or 
ounce  of  metal  and  per  ton  of  ore. 

To  obtain  the  Operating  Departmental  Production  Costs,  the  amount 
of  the  expense  for  each  department,  is  taken  from  the  Cost  Ledger,  and 
the  amount  of  the  credits  is  taken  from  the  production  records  for  both 
the  principal  and  secondary  production,  if  any,  and  these  are  divided 
by  the  amount  of  the  production,  and  statements  of  costs  per  pound 
and  per  ton  are  made  up,  as  shown  by  the  following  forms : 


COMPILING  THE  COSTS 


221 


Total  Operating  Production  Costs  Per  Pound  of  Principal  Product, — 

Year  1918 


Number 
of  Men 


Department  Account 


Cost  per 
Pound 
Copper 


Total 
Expense 


47 

298 

12 

11 

1 


369 


Exploration  and  Development. .  .0.01877 

Ore  Extraction 0 .  06280 

Ore  Transportation 

Operating  Overhead 

Smelting 

Bullion  Freight  and  Refining 

Selling 


$0.08157 
0.00444 
0.01937 
0.03652 
0.02203 
0.00301 


170,497.08 
570,355.09 

40,348.49 
175,868.36 
331,664.74 
200,082.26 

27,373.86 


Total  Operating. 


$0.16694  [  $1,516,189.88 


Credits: 

Gold  and  Silver,  By-products. 
Refunds  and  Discounts,  etc . . . 


$0.02005      $     182.049.69 
0.00055  5,121.89 


Total  Credits I  $0.02060      $     187,171.58 


Net  Operating !  $0.14634      $1,329,018.30 


Total  Operating  Production  Costs  Per  Pound  op  Secondary  Product, — 

Year  1918 


Account 

Pounds  Lead         Cost  Per 
Produced         Pound  Lead 

Total 
Expense 

1,876,240 
31,186 

$0.09741 

$182,752.84 

0.01022             19,169.09 

0.00811             15,228.13 

Lead  Bullion  Refining  and  Selling 

0.01500             28,143.60 

Milled  Lead  Operating  Total 

$0 . 13074 

$245,293.66 

Mill  Production  Credits: 

Gold  and  Silver,  By-products 

$0.04271 
0.00333 

$  81,466.33 
6,356.09 

$0.04604 

$  87,822.42 

Milled  Lead  Operating,  Net 

Credit,  Net  Direct  Shipments 

1,907,426 

513,264 

2,420,690 

$0.08470 

$157,471.24 
20,423.07 

$0.05662 

$137,048.17 

222 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Operating  Production 

Costs  per  Ton 

Tons 

Account 

Cost  per 

Total 

Wet  Ton 

Dry  Ton 

Expense 

Exploration  and  Development 

Ore  Extraction 

$1.3979 
5.8781 
7.2760 

0.1579 
0.2791 

$1.4930 
6.2782 

$7.7712 

5.2936 

$8.5644 

0.4370 

3.5249 

1 . 8691 

$14.3954 

$170,497.08 
716,939.22 

121,969 

114,195 

27,691 

86,504 

Total  Per  Wet  Ton  Stoped 

Total  Per  Dry  Ton  Stoped 

Dry  Tons  Lead  Ore  Credits 

Net  Per  Dry  Ton  Copper  Ore  Stoped . 
Ore  Transportation: 

Tramway  Expense 

$887,436.30 

146,584.13 

$740,852.17 

40,348.49 

93,995 
94,092 

Ore  Freight: 

Smelting  Expense 

331,664.74 

Operating  Overhead 

175,868.36 

$1,288,733.76 

Details  of  Lead  Mill  Production  Cost 
Year— 1918 
Lead  Ore  Production 

Wet  Tons  Total 

29 ,  993   Stoped  and  Developed  Ore $146 ,  584 .  13 

299  On  Hand  and  at  Smelter  1-1-18 

Making 
30,292  Tons  an  average  of ©4.8390  Mining  $146,584. 13 

of  which 

30,118  Tons  were  shipped @0. 1644  Tramway  4,950.99 

30,292  Tons  Mined,  etc.,  Average 5.0025  $151 ,535. 12 

of  which 
1 ,  294  Tons  were  shipped  direct  to  Smelter. . .    @4 .  3051  5 , 570 . 84 

Leaving 
28,998  Tons  at  Average  of 5.0336  $145,964.28 

of  which 
28,823  Tons  Shipped  to  Mill @0. 1192  Ore  Freight        3,436.98 

Making  a  total  of 
28 ,  998  Tons  Mined,  etc.,  Average @5 .  1521  $149 , 401 . 26 

of  which 
28,106  Tons  went  to  Mill 5. 1521  144,864.35 

892  Tons  on  Hand  12-31-18 ©5.0862  $     4,536.91 

393.000  At  MiU 
275.000  On  Track 
224.000  At  Mine 


COMPILING  THE  COSTS 


223 


Lead  Ore  in  Process 

Wet  Tons  Cost  Peb  Wet  Ton 

28 ,  106   Tons  Delivered  to  Mill @$5 .  1521 

Milling  Expense  Treating  27,851 
Wet  Tons  or  27,336  Dry  Tons. . . 


28,106  Tons  to  Mill  in  1918 

of  which 

27,851  Tons  were  Concentrated. . 
93TonsHand- 
Sorted   Lead 
Ore  Smelted . .  .    @$7 .  7444 
54  Tons   Hand- 
Sorted  Copper 

Ore  Smelted..    ©$7.9996 

Making  a  Total  of 
27,998  Tons  Concentrated  and  Smelted. . 
Leaving 

108  Tons  in  Process  12-31-18 

50  Tons  in  Mill 

58  Tons  Hand  Sorted  Ore  at  Mill 


&  3.4306 
)  8.4908 

\  8.4962     $236,626.88 
$720.23 
431.98     $     1,152.21 


Total 
$144,864.35 

93,778.47 
$238,642.82 


8.4927 


@  7.9996 


Lead  Concentrates 

Dry  Tons  Cost  Per  Ton 

3,929.710  Tons  Concentrates  Produced  from  27,851  Wet 

Tons  Milled  in  1918 ©$60.2148 

2,926.060  Tons  Smelted  During  Year @  62.4570 

1,003.650  Tons  on  Hand  12-31-18 @  53.6781 

934 .  205  At  Smelter 
69.445  At  Mill 


237,779.09 


863.73 


TOTAL 

$236,626.88 

182,752.84 

$  53,874.04 


Fluctuations  in  the  cost  per  pound  may  be  due  to  fluctuations  in  the 
expense  or  they  may  be  due  to  fluctuations  in  the  recovery  per  ton. 
Therefore  by  consulting  the  cost  per  ton  along  with  the  cost  per  pound  as 
well  as  the  production  statements  of  recoveries  of  products  and  by-prod- 
ucts, the  cause  of  the  fluctuations,  if  any,  can  be  quickly  ascertained. 

The  tonnage  costs  for  secondary  product  illustrate  the  indirect  method 
of  obtaining  production  costs  as  mentioned  in  "Operating  Accounting" 
under  Production. 

Departmental  Production  Costs. — While  the  Operating  Production 
Costs  per  pound  and  per  ton  along  with  the  production  reports  as  illlus- 
trated  under  Production  Factors,  will  enable  the  Manager  to  locate  the 
fluctuations  and  the  cause  therefore,  they  are  not  in  sufficient  detail  to  be 
of  much  benefit  to  the  department  heads  to  whom  the  Manager  looks 
for  results  and  explanations. 

Therefore,  it  is  necessary  to  furnish  each  department  head  with  a 
statement  showing  the  costs  based  upon  the  production  of  his  department 
for  each  sub-department  and  for  each  element  of  expense  as  compiled  in 
the  Cost  Ledger. 


224  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Such  an  analyzed  statement  is  furnsihed  the  head  of  each  department 
of  Mining,  Milling,  Smelting,  etc.,  as  shown  by  the  Statement  of  Costs  for 
the  Mining  Department,  as  shown  by  form  on  page  226. 

Upon  the  receipt  each  month  of  such  a  statement  of  costs,  the  head  of 
each  department  can  quickly  compare  the  costs  with  the  previous  month 
or  months,  and  ascertain  in  what  sub-departments  there  were  increases 
or  decreases,  and  in  what  elements  of  expense  the  increases  or  decreases 
occurred.  Also,  by  comparing  the  production  statements  with  previous 
months  it  can  be  seen  whether  or  not  there  were  any  fluctuations  in 
production  and  what  was  the  result  in  the  costs. 

While  these  departmental  production  costs  enable  each  department 
head  to  readily  ascertain  all  fluctuations  in  his  department  and  to  locate 
the  source  of  any  fluctuation,  they  do  not  give  sufficient  detail  to  inform 
him  as  to  what  is  the  item  of  expense  that  caused  the  fluctuation.  To 
obtain  such  information,  it  is  necessary  to  detail  the  expense  of  each  sub- 
department,  and  in  order  to  make  the  details  of  the  sub-departments  of 
value  to  the  supervisors  of  these  departments,  the  proper  production  or 
operating  unit  for  each  department  is  compiled  and  the  unit  cost  for  each 
sub-department  shown  as  explained  under  Departmental  Unit  Costs. 

DEPARTMENTAL  UNIT  COSTS 

It  is  possible  for  the  expense  of  some  of  the  sub-departments  to 
fluctuate  from  month  to  month  regardless  of  the  amount  of  the  produc- 
tion of  the  department,  on  which  costs  have  been  determined  and  with- 
out any  change  in  efficiency,  wages  or  costs  of  supplies,  etc.  For 
instance  the  production  cost  of  Exploration  and  Development  may  either 
increase  or  decrease  when  there  has  been  the  same  rate  of  mine  pro- 
duction, and  the  same  efficiency  in  development  work,  due  to  more  or 
less  development  work  done.  The  same  may  occur  with  Pumping  due 
to  increase  or  decrease  in  flow  of  water,  and  to  Maintenance  of  Shafts  and 
Drifts,  as  a  result  of  more  or  less  work  done,  and  to  Supervision  as  a  result 
of  vacations,  as  well  as  to  Stoping  as  a  result  of  increase  or  decrease  in 
amount  of  shipping  ore  encountered  in  development,  etc. 

Therefore,  it  is  necessary  to  determine  the  costs  for  the  sub-depart- 
ments upon  the  production  or  operating  unit  applicable  to  each  depart- 
ment, such  as  per  foot  advanced  in  Sinking,  Drifting,  Raising,  etc.,  per 
wet  ton  stoped  for  Stoping;  per  car  of  ore  and  waste  for  Tramming,  Station 
Tending  and  Caging  and  for  Top  Landing;  per  thousand  gallons  of  water 
pumped  for  pumping,  etc.  Thus  the  proper  cost  is  obtained  for  each 
supervisor,  and  the  efficiency  of  each  sub-department,  or  unit  is  ascertained. 

To  obtain  the  departmental  unit  costs,  the  detail  of  the  expense  for 
each  sub-department  is  taken  from  Form  No.  50,  and  the  total  production 
or  operating  units  for  each  sub-department  is  divided  into  the  amount  of 


COMPILING  THE  COSTS  225 

the  departmental  expense,  and  detail  statements  of  sub-departmental 
costs  and  expense  made  up,  as  follows: 

Details  of  Exploration  and  Development  Expense 

Drifting:  960  feet  @  $9.7235 $9  237  35 

Labor $4.  ggg  31 

4489$  Miners          @$5.35.  .  .  $2,400. 14 

447%  Muckers       @  5.10. ..  2,280.97 

14      Timbermen  @  5 .  60 .  .  .  78 .  40 

Footage  Bonus 136 .  80 

Supplies 2,709.49 

Explosives $2,568.04 

Timber... 141.45 

Air   Drills 1,631.55 

Feet  advanced  per  man  shift  1.0441. 

Raising:  308  feet  @  12.8087  3,945.07 

Labor $1,758.22 

176  Miners  @5.35 $941.60 

62%  Muckers       @5.10 302.02 

69%  Timbermen  @  5.60 390.60 

Footage  Bonus 106 .  00 

Supplies 1 ,539.92 

Explosives $622.92 

Timber 917.00 

Air  Drills 646.93 

Feet  advanced  per  man  shift  0.999. 
Total  Exploration  and  Development  Expense $13,182.42 


Details  of  Ore  Extraction  Expense 

Sloping:  9,366  Wet  Tons  @  $3.3428  per  ton . .  $31 ,  309 .  06 

Labor $22,324.20 

1, 768 H  Miners  @$5.35 $9,459.47 

2,183%  Muckers        @5.10 11,137.13 

308)£  Timbermen  @  5 . 60 1,727.60 

Supplies 5,544.39 

Explosives $  2 ,054 .  87 

Timber 3,489.52 

Air  Drills 3,440.47 

Tons  stoped  per  man  shift  2.198. 
etc. 

15 


226 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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COMPILING  THE  COSTS  227 

A  complete  statement  of  Departmental  Unit  Costs  and  Expense 
for  each  sub-department  as  shown  above  is  furnished  each  department 
head  along  with  the  Departmental  Production  Costs  for  each  period, 
and  gives  him  sufficient  data  to  determine  the  cause  for  any  fluctuation 
in  costs  from  month  to  month,  and  any  change  in  efficiency,  and  enables 
him  to  properly  instruct  his  supervisors  and  to  correct  any  deficiency  or 
waste.  It  will  be  noted  that  no  detail  is  given  of  the  Power  Expense  of 
Steam,  Air,  Air  Drills,  etc.  The  detail  of  the  Power  Expense  is  given 
in  the  Power  Costs. 

In  determining  the  departmental  unit  costs,  there  can  be  shown 
either  the  total  cost  and  the  detail  of  the  expense  as  illustrated  above, 
or  the  cost  can  be  figured  for  each  item  of  expense.  The  latter  method 
requires  more  time  and  office  expense,  and  it  is  doubtful  whether  the 
detail  costs  are  of  any  more  value  to  the  operating  man  for  compari- 
son and  analysis  than  the  detail  expense.  The  detail  costs  should  be 
delivered  to  the  operating  heads  and  supervisors  as  soon  after  the  first 
of  each  month  as  possible,  before  the  following  month's  work  has  absorbed 
their  attention  and  to  enable  them  to  put  into  immediate  effect  any 
changes  that  the  cost  statements  indicate  as  necessary  or  beneficial. 
An  elaborate  cost  sheet  received  the  fifteenth  of  the  following  month 
can  not  be  of  as  great  a  value  to  the  operating  head  as  a  simple  one 
received  on  the  fifth.  An  elaborate  analysis  of  each  month's  expense 
for  each  sub-department  and  unit  is  not  necessary  under  proper  super- 
vision  and  management.  Therefore  detail  costs  for  reference  and 
record  can  be  made  up  after  the  operating  costs  have  been  furnished  the 
operating  departments. 

Detail  Unit  Costs. — While  the  Departmental  Unit  Costs,  as  illustrated, 
give  sufficient  detail  for  the  supervisors  of  most  of  the  sub-departments, 
in  some  of  these  departments  where  the  work  covers  many  places,  such  as 
Sinking,  Drifting,  Raising  and  Stoping,  it  is  necessary  for  the  one  in 
charge  of  the  work  to  know  the  expense  and  cost  of  each  piece  of  work 
under  his  direction.  To  meet  this  need  Detail  Unit  Costs  of  each  unit 
of  each  sub-department  are  compiled  from  the  Monthly  Underground 
Distribution  Sheets,  Form  No.  47,  and  Statements  of  Costs  for  each 
Stope,  Drift,  etc.  is  made  out  and  furnished  the  department  head  and  the 
supervisors  in  direct  charge,  as  follows: 


228 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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COMPILING  THE  COSTS  229 

In  place  of  showing  the  expense  for  Labor,  Supplies,  etc.,  for  each 
place  and  the  total  cost  per  ton  for  each  place,  the  cost  for  each  element  of 
expense  can  be  shown  as  well  as  the  total  cost  if  the  operating  department 
head  and  supervisors  prefer. 

A  summary  of  the  assays  obtained  on  mine  and  smelter  samples  of 
ores  stoped  is  shown  for  information  of  the  one  in  charge  of  sampling. 
Usually  the  assays  from  mine  samples  are  high  and  the  comparative 
assay  statement  is  given  each  month  to  inform  the  mine  department 
and  manager  of  the  amount  of  the  discrepancy. 

A  similar  statement  of  the  expense  and  cost  of  each  Shaft,  Drift  and 
Raise  is  made,  as  shown  on  page  230. 

There  is  summarized  upon  the  statements  of  development  costs  the 
amount  of  development  ore  dumped  into  the  shipping  bins.  A  check 
should  be  made  of  this  ore  to  see  that  it  pays  for  itself. 

When  the  mine  consists  of  a  number  of  shafts  or  divisions,  Detail 
Unit  Costs  are  determined  for  each  shaft  or  each  division,  and  at  the 
end  of  each  month. or  quarter  comparative  costs  can  be  compiled  as 
shown  by  the  statement  on  page  231. 

Such  comparative  costs  are  made  on  all  the  sub-departments,  as  well  as 
on  the  details  of  each  sub-department  at  any  time  that  it  is  desired  to 
ascertain  the  reason  for  differences.  In  making  up  such  comparisons 
the  factors  that  fluctuate  the  costs  should  be  summarized  below  the 
comparative  costs,  as  shown  on  page  232. 

Practically  all  the  factors  that  would  fluctuate  the  costs  for  the  two 
shafts  are  shown  except  feet  trammed  per  car  of  ore  and  waste.  By  a 
careful  examination  of  such  a  statement  the  reasons  for  most  of  the 
differences  in  costs  can  be  obtained. 

DAILY  AND  WEEKLY  COSTS 

The  Exploration  and  Development  and  the  Stoping  are  usually  the 
largest  sub-departments,  in  amount  of  expense,  in  the  number  of  men, 
and  number  of  places  being  worked.  On  account  of  the  great  number  of 
men  and  places  worked  in  these  sub-departments  and  the  rapid  turn  over 
of  the  labor,  it  is  sometimes  desirable  to  have  daily  costs  of  labor  and 
supplies  for  each  place  that  is  being  worked,  to  assist  the  supervisors  to 
maintain  a  consistent  and  high  degree  of  efficiency.  To  provide  for  this, 
the  Underground  Distribution  Sheet,  Form  No.  47,  is  so  drawn  as  to  enable 
daily  or  weekly  statements  of  cost  of  labor  and  supplies  to  be  made  up 
for  each  drift,  raise  and  stope,  by  the  mine  timekeeper  and  furnished 
to  the  proper  operating  heads,  as  shown  by  Form  No.  53. 

In  determining  these  daily  and  weekly  costs  the  amount  of  labor 
expense  is  correct  and  usually  the  item  of  supplies  is  correct,  but  other 
expense  items  cannot  be  shown  except  as  an  estimate.     However,  any 


230 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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232  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Comparative  Ore  Extraction  Costs  Per  Wet  Ton  For  February — 1917 


Shaft 

Over 

Under 

Mine  Department 

Shaft  No.  1 

No.  2 

No.  1 

No.  1 

$1 . 1656 

$3.0117 

$1.8461 

Tramming  and  Tracks: 

Tramming  Ore $0 .  3772 

Tramming  Waste 0.3628 

Underground  Tracks.   0  1316 

0.8716 

0.4106 

$0.4610 

Station  Tending  and  Caging .... 

0.1136 

0.0651 

0.0485 

Hoisting 

0.4443 

0.2148 

0 . 2295 

Top  Landing  and  Loading  Ore . . 

0.2349 

0.0937 

0.1412 

Repairs  Shafts,  and  Drifts 

0.8388 

0 . 2595 

0 . 5793 

Underground  Lighting .  .  $0 .  0549 

Underground  Ventilating     .0124 

General  Underground. . .  0 .  3616 

0.4290     0.1067 

0.2559 

0.1731 

Engineering  and  Assaying 

0.1492 

Pumping 

0.1983 

0.0643 

0.1340 

Underground  Supervision 

0.2144 

0.2081 

0.0063 

General  Surface 

0.0840 

0.1301 

0 . 0461 

$4.5945 

$4.7138 

U . 7729 

$1 . 8922 

Net  Cost  Under  No.  2 

0.1193 
$4.7138 

Total  Wet  Tons  Stoped 

11598 

17977 

6379 

Wet  Tons  Per  Man  Shift  Stop- 

mg 

7.66 
5.30 

2.65 
4.36 

5.01 
0.94 

Per  Cent  Copper  Per  Wet  Ton. . 

Number  of  Stopes  Worked 

20 

37 

17 

Total  Tons  from  Largest  Stope . . 

3400 

2286 

1114 

Average  Tons  Per  Stope 

580 

486 

94 

Total  Feet  Development 

2528 

2125 

403 

Feet     Development     per     Ton 

Stoped 

0.218 

0.119 

0.099 

Feed  Advanced  Per  Man  Shift  . 

1.274 

1.238 

0.036 

increase  or  decrease  in  wages  of  labor  and  cost  of  supplies  will  fluctuate 
the  cost  per  ton,  or  per  foot,  regardless  of  the  efficiency  as  shown  by  the 
tons  per  man  shift.  When  both  prices  and  efficiency  are  fluctuating, 
as  has  been  the  case  during  the  war  period,  it  is  difficult  for  the  foremen 
and  shift  bosses  to  determine  what  proportion  of  the  increase  or  decrease 
is  due  to  fluctuation  in  prices  and  what  to  efficiency.  For  this  reason 
there  sometimes  has  been  substituted  for  the  daily  or  weekly  statement 
of  costs  of  Stoping,  Drifting,  Raising,  etc.,  a  Daily  and  Weekly  State- 
ment of  Production,  as  shown  by  the  following  form : 


COMPILING  THE  COSTS 


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234 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Such  a  statement  gives  the  factors  concerned  in  production  or  oper- 
ation for  which  the  supervisors  are  directly  responsible,  and  these  factors 
are  always  the  same  regardless  of  prices  of  supplies  or  scale  of  wages. 
They  are  the  things  that  are  seen  and  contacted  each  day,  and  such 
statements  are  of  more  interest  and  value  to  the  operators  in  charge 
than  statements  of  results  in  dollars  and  cents. 

A  number  of  small  producers  do  not  wish  to  go  to  the  expense  of 
determining  daily  costs,  but  instead  get  out  a  daily  labor  and  production 


Daily  Statement  of  Cost 

Report  of   Stone  Costs                                                                  For                                                            10 

Place 

.NoCars 
Ort 

Tuns 

Oie 

Sb.ll!  Labol 

Total  Cost               |      Cost  ptr  Tun 

K.tis 

Man 

Sbilt 

Remarks 

11  IX) 

Lab.,r 

11''-  " 

H„»Jc, 

U1..JI 

S-W 

T„tal 

1 -| 

Form  63. 

report  for  the  information  of  the  head  of  the  mine  department  similar 
to  Form  No.  54.  Similar  reports  can  be  made  up  for  Milling,  Smelting, 
etc.,  and  will  keep  the  department  head  in  daily  touch  with  the  work 
being  performed. 


COMPARATIVE  COSTS 

It  is  customary  for  some  mines  to  make  up  comparative  costs  for 
each  department,  sub-department  and  unit  for  each  period.  While 
such  costs  are  of  great  value,  it  is  doubtful  whether  or  not  the  benefit 
to  the  operating  heads  of  comparative  costs  on  each  sub-department  and 
unit  for  each  period  will  offset  the  expense  involved  and  the  delay  that 
results  in  getting  out  such  cost  statements. 

However,  it  is  best  to  furnish  each  department  head  each  month  with 
a  comparative  departmental  cost  statement  as  shown  by  the  following 
form: 


COMPILING  THE  COSTS 


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236 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


DAILY  MINE  REPORT 

SHATTUCK  ARIZONA  COPPER  CO. 
19                                                                                                                                                                                                         SHAFT 

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COMPILING  THE  COSTS 


237 


If  the  cost  of  any  particular  sub-department  or  element  of  expense 
shows  an  unreasonable  increase  or  decrease,  then  detail  and  comparative 
costs  can  be  worked  up  to  show  the  reason  therefor.  In  this  manner, 
the  expense  and  time  involved  in  obtaining  exhaustive  detailed  com- 
parative costs  is  avoided,  and  the  operating  heads  are  not  burdened  with 
voluminous  cost  statements  of  uncertain  value. 

SHOPS  AND  POWER  COSTS 

When  the  size  of  the  shop  force  will  justify  a  cost  system,  accurate 
shop  costs  of  each  job  should  be  kept.  However,  the  power  costs  should 
be  ascertained  each  month  regardless  of  the  size  of  the  power  plants. 

Shop  Costs. — When  the  amount  of  the  shop  work  is  large,  there  should 
be  kept  shop  costs  for  each  job,  using  a  form  similar  to  Form  No.  55 


No.                                                 Date 

191 

JOB 

LABOR 

SUPPLIES 

Workman 

Hours                            Rate  per  Day 

Material 

Date  Item  Completed 

Shop  Expense 

Cost  per  Item 

Charged 

Form  55. — Daily  Job  Report. 


The  amount  of  the  daily  shop  labor  charges  for  each  job  being  compiled 
from  Daily  Labor  Reports,  Form  No.  48  and  the  amount  of  the  supply 
charges  being  compiled  from  Supplies  Issued  Record  Sheets,  Form  No.  18 
and  the  proportional  charge  for  Shop  Expense  being  taken  from  the 
Shop  Sheets,  Form  No.  49  at  the  end  of  each  month.  A  statement  of  cost 
for  each  job  is  made  when  the  work  is  completed. 

However,  when  the  shop  force  is  small  and  fixed  from  month  to  month 
as  is  usually  the  case  with  the  majority  of  mines,  a  simple  method  of 
showing  the  shop  costs  is  to  distribute  the  expense  for  each  job  from  each 
shop  upon  Shop  Sheets,  Form  No.  49  and  to  summarize  the  shop 
charges  upon  From  No.  50  and  make  up  statements  of  Shop  Expense 
for  each  job,  as  follows: 


238 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


Shop  Expense  and  Costs  for  January — 1919 
Expense 


Machine 
Shop 


Blacksmith 
Shop 


Carpenter 
Shop  and 
Sawmill 


Total 


Labor:  Expense: 

Shops 

Overhead 

Total  Labor 

Supplies:  General  Operation 

General 

Iron  and  Steel 

Lumber  and  Timber 

Machinery 

Pipe  and  Fittings 

Oils  and  Greases 

Tools 

Supplies:  Drill  Sharpener: 

Iron  and  Steel 

Fuel 

Machinery 

Total  Supplies 

Bills  Audited: 

Water 

Electricity 

Total  Bills  Audited 

Total  Shops 


$3,935.62      $     754.50 
221.21  42.42 


$4,156.83 


44.43 


13.04 

0.27 

33.89 

48.24 


$     139.87 


18.27 


18.27 


$4,314.97 


$     796 . 92 


$1,142.29 
235.13 


$5,832.41 
498.76 


$1,377.42 


$6,351.17 


65.19 

1.97 
0.46 
2.50 

4.38 

1.03 

120.95 

0.92 


$     197.40 


5.00 
4.60 


9.60 


0.57 
2.20 


0.82 
14.62 


110.19 

2.20 

1.97 

13.50 

2.77 

34.71 

67.24 

1.03 

120.95 
0.92 


18.21 


$     355.48 


13.24 


5.00 
36.11 


13.24 


41.11 


$1,003.92      $1,408.87      $6,727.76 


Costs 


Details  of  Work: 

Underground  Track — New 

Surface  Track — New 

Underground  Tools  and  Sundries 

8urf  ace — General 

Surf  ace — Heating 

Total  Development  Overhead. 

Boilers — Scaling 

Boilers — Pumping  Water 

Sharpening  Steel 

Total  Power 

Shaft  Hoist — Repairs 

Mine  Cars 

Bell  Signals 

Chairs 

Hoist — General 

Hoist  Brake  Blocks 

Hoist  Sheave  Wheels — Changing 

Hoist  Cable — Changing 

Hoist  Cages 

Surface  Tracks 

Underground  Water  and  Lights. 

Pump  — General 

Pumps — Steam  Lines 

Pumps  Discharge  Line 

Surface  Water  and  Lights 

Surface  Heating 


17.16 


77.29 
3.82 


$       67.69 

3.79 

127.14 

3.77 


80.76 
0.51 


98.27 


$     282.01 
31.56 


$     313.57 


105.74 

127.60 

127.78 

32.33 

32.91 

33.26 
14.26 
96.05 

23.17 
668 . 99 
167.42 

99.07 
107 .  52 

14.89 


$  202.39 


$  480.15 


$  480.15 


20.79 
3.79 


24.62 


81.27 


11.24 


25.06 


4.09 


84.85 

3.79 

285.19 

4.33 

3.77 


$  381.93 


$  282.01 

31.56 

480.15 


$  793.72 


$  105.74 

127.60 

127.78 

53.12 

36.70 

11.24 

33.26 

14.26 

96.05 

25.06 

23.17 

668 . 99 

192.04 

99.07 

111.61 

14.89 


COMPILING  THE  COSTS 
Shop  Expense  and  Costs  for  January — 1919  (Continued) 


239 


Machine 
Shop 


Blacksmith 
Shop 


Carpenter 
Shop  and 
Sawmill 


Total 


Ore  Chutes 

Buildings 

Assay  Office 

Supervision — Dwellings  Occupied 

Boilers — General 

Boilers — Tools 

Boilers — Steam  Lines 

Boilers — Oil  Pumps 

Compressors 

Air  Drills 

Total  Repairs 

Boiler  Tubes — Replacements.  .  ¥ 

New  Dinky  Hoist 

New  Dinky  Hoist  House 

New  Boiler  Feed  Pumps 

New  Dinky  Cages 

New  Drill  Steel 

Total  Replacements 

New  Mine  Cars 

Flue  Rattler 

First  Aid  Boxes 

Ventilation  Blowers 

Total  Construction  and  Equipment 

Framing  Timber 

Pumping  Oil 

Miscellaneous  Handling 

Total  Handling  Supplies 

Eaton  &  Smith 

Shattuck  Arizona  Copper  Co 

Mill  Platform 

Mill  Pumps 

Mill  Tools 

Mill  Crusher 

Mill  Launders 

Mill  Tanks 

Mill  Unloading  Track 

Mill  Classifier 

Mill  Meter  Reading 

Mill  Miscellaneous 

Total  Accounts  Receivable 

Total  Shop  Work 


8.51 

0.91 

397 . 90 

22.66 

20.25 

3.52 

60.12 

119.59 


3.78 


24.45 


5.68 


$  16.36 
2.55 


13.28 
3.06 


16.36 

2.55 

12.29 

14.91 

400.96 

47.11 

20.25 

3.52 

60.12 

125.27 


$2,284.45 


$       97 . 86 
442.05 


39.32 
193.86 


$     773.09 


$     189.08 
72.71 


389 . 76 


$     651.55 


S       24 . 68 


t       83.11 


7.56 


120.68 
42.94 


$     171.18 


13.26 


20.83 


34.09 


$       24. 


19.08 

63.35 

18.17 
11.71 

29.42 
14.04 
13.59 


16.00 


1.88 
5.66 
7.58 
1.88 


$       75.64 


$       97 . 56 
6.13 


$     103.79 


$       54.19 


$  2,443.20 


97.86 
449.61 

97.66 

45.45 
314.54 

42.94 


$1,048.06 


202.34 
72.71 
54.19 

410.59 


$       54.19 


$1,031.63 
8.18 


$     739.83 


$1,031.63 

24.68 

8.18 


$1,039.81   |   $1,064.49 


54.17 


16.00 

54.17 
20.96 

5.66 
70.93 

1.88 
18.17 
11.71 
29.42 
14.04 
13.59 


$     169.36 


33.00 


54.17      $     256.53 


$4,314.97   i   $1,003.92      $1,408.87      $6,727.76 


At  the  end  of  each  quarter  the  Shop  charges  can  be  summarized 
as  to  total  charges  for  each  job  and  will  serve  as  a  guide  as-  to  whether 
or  not  the  shop  charges  are  excessive. 

Theoretically  there  is  always  a  certain  amount  of  dead  time  in  the 
shops  which  should  be  pro-rated.  However,  in  operation  it  is  difficult  to 
ascertain  the  amount  of  dead  time,  unless  the  shops  are  sufficiently  large 
to  justify  a  timekeeper  at  the  works  who  will  check  the  distributions  of 
each  man's  time.  Due  to  the  fact  that  it  is  necessary  to  keep  the  shop 
force  intact  from  month  to  month,  a  certain  amount  of  miscellaneous 


240  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

work  is  always  kept  in  reserve  to  be  done  on  dead  time,  and  any  dead 
time  for  each  day  that  cannot  be  put  upon  such  work  is  absorbed  in 
making  daily  distributions. 

POWER  COSTS 

The  Power  Costs  are  determined  upon  the  production  or  operating 
factors  of  the  Compressor  Plant,  Electric  Plant  and  Air  Drills,  all  of 
which  are  under  the  supervision  of  the  Mechanical  Department. 

Boiler  Horse  Power  Costs. — To  obtain  the  Boiler  Horse  Power  Cost 
for  each  period  it  is  necessary  to  keep  an  accurate  record  of  the  amount  of 
fuel  consumed  and  of  the  amount  of  water  evaporated.  From  these  two 
factors  the  amount  of  Boiler  Horse  Power  Produced,  and  the  efficiency  of 
the  boilers  is  obtained,  usually  by  the  Mechanical  Department. 

To  obtain  the  cost  per  boiler  horse  power,  the  amount  of  the  average 
horse  power  is  divided  into  the  total  and  into  each  element  of  expense, 
as  shown  by  the  following  statement: 

Boiler  Horse  Power  Cost  For  January — 1919 
Boiler  Expense: 

Barrels  Fuel  Oil 3 , 756 . 24 

Gallons  Water  Evaporated 1,878,120.00 

Gallons  of  Water  per  barrel  of  Oil 

Average  Boiler  Horse  Power 666 .  45 

Efficiency  of  Boilers,  Per  Cent 74 .  41 

Expense  Cost  per  B.hp. 

Labor— 91  Firemen  @  $5.85 $       532 .  35  $  0 .  798 

Supplies— Fuel  Oil 9,992.27  14.993 

Shops 313.57  0.473 

Scaling $     282 .  01 

Pumping  Water 31 .  56 

Repairs 1,861.41  2.792 

General $1 ,  790 .  53 

Surface  Steam  Lines 20.25 

Boiler  Oil  Pump 3.52 

Tools 47.11 

Bills  Audited— Water 475 .  25  0.713 

Replacements — Retubing 30 .  44  0 .  045 

$13,205.29  $19,814 

The  determining  of  the  cost  of  steam  is  one  of  great  importance  and 
should  be  carefully  ascertained  each  month  and  occasional  checks  should 
be  made  against  the  boilers  by  computing  the  amount  of  steam  consumed 
by  the  different  units,  to  be  sure  there  is  no  material  loss  in  transmission. 

FACTORS  NECESSARY  TO  DETERMINE  BOILER  HORSE  POWER 

The  pounds  of  water  that  should  be  evaporated  per  hour  per  Boiler 
Horse  Power  will  depend  upon  the  gauge  pressure  and  the  temperature 


COMPILING  THE  COSTS  241 

of  the  feed  water.  For  a  gauge  pressure  of  125  lb.  and  a  feed  water 
temperature  of  165°,  the  factors  for  determining  Boiler  Horse  Power 
and  the  efficiency  are,  as  follows: 

Factors  for  Figuring  Boiler  Horse  Power 

Heat  Units  necessary  to  change  one  pound  of  water  to  steam 

with  a  gauge  pressure  of  125  lb.  and  the  feed  water  at  165°. . .  1 , 059  200 

Pounds  water  evaporated  per  hour  per  boilers  horse  power  ...  31 .  608 

Pounds  water  one  pound  fuel  oil  should  evaporate 17 .  230 

(18,250  divided  by  1,059.2) 

One  gallon  of  water  weighs    8 .  3448  lb 

One  gallon  of  fuel  oil  weighs  7. 7500  lb 

The  Cost  Department  should  keep  the  record  of  water  to  boilers 
and  of  oil  consumed  and  have  the  formulae  for  determining  boiler 
horse  power,  so  that  the  Mechanical  Department's  reports  on  boiler 
horse  power  can  be  checked. 

Compressor  Costs. — The  cost  of  compressed  air  is  computed  per 
thousand  cubic  feet  of  free  air  against  the  expense  of  operating  the 
compressor  in  the  same  manner  as  in  obtaining  Boiler  Horse  Power  Cost. 

Air  Drill  Operating  Cost. — The  cost  of  operating  Air  Drills  is  deter- 
mined per  hour  of  air  consumed  by  Air  Drills.  To  obtain  the  total  Air 
Drill's  Hours,  a  summary  is  taken  from  the  Distribution  Sheets,  Form 
No.  47  and  the  total  hours  are  divided  into  the  total  and  into  the 
detail  expense  compiled  from  the  Cost  Ledger  and  from  Summary 
Sheet,  Form  No.  50  and  a  Statement  of  Air  Drill's  Costs  is  made  up  in 
form  similar  to  that  shown  for  Boiler  Horse  Power  Cost. 

Air  Drill  Repair  Costs. — In  order  to  know  what  drills  are  efficient  and 
which  are  not  it  is  necessary  to  keep  a  record  of  operating  repair  costs  of 
each  class  of  drills.  Such  a  record  is  usually  compiled  as  shown  on 
page  242. 

The  drill  that  requires  less  repairs  is  usually  the  one  that  is  most 
efficient  of  its  class.  However,  a  record  should  be  kept  of  the  footage 
obtained  from  each  class  of  drill  for  each  class  of  ground. 

While  the  air  drill  expense  itself  is  not  large,  upon  the  efficiency  of 
the  drills  depends  to  a  large  degree  the  efficiency  of  the  development  and 
of  stoping,  usually  two  of  the  largest  items  of  expense  in  mining. 


16 


242  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

Air  Drill  Repair  Costs  for  Month  of  May — 1918 


Make  and  Type 
of  Machine 


Class  of 
Drill 


Shop 
No. 


Times 

Re- 
paired 


Labor 


Sup- 
plies 


Total 


Total 
8-Hour 
Service 

Units 


Cost 

per 

8-Hour 

Service 


Number 

of 
Machines 
in  Service 


Cochise  7 

Mine  Supplies.  .  . 

Waugh  V-16 

Mine  Supplies.  .  . 

BCRW-430  Inger 

soil 

Mine  Supplies.  .  . 

Cochise  24 

Mine  Supplies.  .  . 


Cochise  RHH  36. 
Mine  Supplies.  .  . 

Denver  Clipper.  . 


Mine  Supplies. .  . 

Waugh  60 

Mine  Supplies.  .  . 


Chippie 


Stoper 


Jackhammer 


Jackhammer 


Jackhammer 


Water 


Water 


5 

11 
l.-> 


4 

5 

10 

12 


1 

0.67 

1.00 

1 

1.32 

2.56 

1 

0.66 

1.68 

1.67 
3.88 
1.34 
8.81 


2.65 

5.24)16.70  I   97.000 

0.1722 

19 

7 

1 

0.67 

0.35 

1.02 
1.76 

0.67 

0.35|  2.78  |118.375 

0.0024 

23 

10 

2 

2.03 

11.18  13.21 
|59.94 

2.03 

11. 18173.15   |   32.500 

2.2508 

10 

1 

1 

0.67 

0.68 

1.35 
0.02 

0.67 

0.68     1.37    I     1.750 

0.7830 

1           1 

2 

1 

0.66 

0.68 

1.34 
22.30 

0.66 

0.6823.64   | 

1 

1 

0.66 

4.03 

4.69 

1 

0.67 

1.83 

2.50 

1 

0.67 

1.64    2.31 

1 

0.66 

0.28    0.94 

26.91 

2.66 

7.7837.35   |   63.625 

0.5871 

16 

5 

6 

11 

1 

1 
1 

0.67 
0.67 
0.66 

0.33J   1.00 

2.52    3.19 

0.081  0.74 

14.43 

1   2.00    2.93     19.36     136.375 


0.1420 


COST  OF  PREPAID  EXPENSE 

The  principal  items  of  Prepaid  Expense  consist  of  Repairs  and 
Replacements.  The  Prepaid  Insurance  Cost  is  shown  as  one  charge  the 
first  of  each  year,  and  the  cost  of  Suspense  Items  of  advances  for  travel- 
ing, matters  in  suspense,  etc.,  are  shown  either  by  Detail  Expense  State- 
ments or  in  some  of  the  other  cost  statements  after  the  Suspense  Items 
have  been  cleared. 

A  separate  account  is  kept  for  each  Repair  and  Replacement  Job, 
and  at  the  end  of  each  period  statements  of  Cost  Details  of  Repairs  and 
of  Replacements  are  furnished  to  the  Operating  Head  and  to  the  Depart- 
ment Supervisors  along  with  the  other  statements  of  costs.  The 
statements  are  usually  made  up,  as  shown  by  the  following: 


COMPILING  THE  COSTS 
Details  of  Repairs  " 


243 


Labor 

Sup- 
plies 

Shops 

Bills 
Audited 

Sub- 
Total 

Total 

Tramming  and  Tracks: 
Mine  Cars 

$17.76 

$242.27 
83.16 

94.38 

111.27 

6.73 

313.96 

8.14 

76.22 

102.10 

24.50 

590.77 
6.04 

17.06 
10.31 
82.08 

33.37 
3.75 

82.56 
39.23 

$343.19 

Underground  Tracks 

83.16 

Station  Tending  and  Caging: 
Chairs 

$3.69 
4.75 

1.38 

6.51 
2.90 

1.38 

4.22 
16.46 

9.90 
145.47 

270.92 

34.19 

80.44 
1.31 

94.38 

94.38 

Bell  System 

Hoisting: 
Cages 

114.96 

6.73 

328.61 

450.30 

Dinky  Hoist 

General 

Top  Landing  and  Tramming: 
W.  H.  Tracks 

8.14 

8.14 

General  Underground: 

Water  and  Lights 

Tools  and  Sundries 

Telephones 

221 . 69 
102.10 
24.50 

348.29 

Pumping: 

General 

863.07 
6.04 

869.11 

Columns 

Surface: 

Buildings 

57.76 

13.21 

163.90 

1.31 
33.37 

7.97 
16.46 

293.98 

Ore  Bins 

Water  and  Lights 

Heating 

Telephones 

General 

Fire  Protection 

Assaying: 

General 

82.56 
39.23 

121.79 

Furnace 

Supervision: 

Dwellings  Occupied 

14.53 

14.53 

14.53 

Total    Ore    Extraction 

Repairs 

$4 1.29  $559. 99 

1 

$1,942.43| 

$2,543.71 

| 

Boilers: 

General 

$20.00 

$19.79 

136.26 
341.47! 

$93.16 
8.43 
1.52 

56.35 
18.47 

13.36 

88.49 

112.45 

$132.95 
8.43 
1.52 

$142.90 

Steam  Lines 

Compressor: 

General 

56.35 
18.47 

74.82 

Air  Drills: 

Air  Lines 

13.36 
224.75 
453.92 

692.03 

Hose  and  Fittings 

General 

Total  Power  Repairs . . . 

$20 .  00  $497 .  52J 

$392.23 

$909.75 

244 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


These  statements  keep  the  Operating  Heads  informed  of  the  amount 
of  Repairs  and  Replacements  for  each  job  and  in  total,  and  such  segrega- 
tions allow  the  Repair  and  Replacement  charges  to  be  shown  separately 
upon  the  Operating  Cost  Sheets. 

If  any  item  of  expense  is  unusual  the  Detail  Sheets  are  consulted  for 
the  facts. 

ASSET  COSTS 

The  Asset  Costs  consist  of  Administrative  Asset  Costs  and  Operating 
Asset  Costs.  The  Administrative  Asset  Costs  of  Mine  Property  and 
Investments  are  shown  by  the  accounts  in  the  Administrative  Ledger. 

The  Cost  Details  of  Development  of  Mine  Property  that  is  charged 
to  the  property  account  are  kept  in  the  same  manner  as  the  Development 
Costs  of  Operation. 

The  principal  Operating  Asset  Costs  consist  of : 

Construction  and  Equipment, 

Materials  and  Supplies,  and 

Accounts  Receivable. 

CONSTRUCTION  AND  EQUIPMENT  COSTS 

Segregations  of  the  expense  are  kept  for  each  unit  of  Construction  and 
Equipment  and  recorded  upon  Summary  Forms  No.  50  and  in  the  Cost 
Ledger,  in  the  same  manner  as  with  Repairs  and  Replacements,  and 
statements  of  the  details  of  the  expense  are  made  up  from  Form  No.  50 
for  each  unit  for  each  period  in  the  same  form  as  for  Repairs  and 
Replacements. 


ACCOUNT 

DATS 

.>.._(.\.II'TIUN 

AitOUNT 

3) 

— u 

*l 



r 

Form  56. — Record  of  Equipment. 

However,  in  order  that  a  concise  summary  of  the  Construction  and 
Equipment  may  be  obtained,  a  control  account  for  the  total  equipment  of 
each  department  is  also  carried  in  the  ledger,  as  shown  on  Chart  XIV  and 
by  Cost  Accounts  Numbers  110  to  127  inclusive. 

The  detail  unit  costs  of  equipment  are  checked  against  the  estimated 
costs  and  also  can  be  used  for  establishing  schedules  of  depreciation  when 
the  latter  is  based  upon  the  life  of  each  piece  of  equipment. 


COMPILING  THE  COSTS  245 

The  control  equipment  accounts  serve  to  show  the  amount  of  equip- 
ment assets  in  concise  form  and  are  used  as  reference  and  when  deter- 
mining the  amount  of  insurance  that  is  to  be  carried. 

In  order  to  have  a  complete  record  of  all  equipment,  the  description  of 
each  item  together  with  total  cost,  and  the  date  each  item  was  charged 
out,  is  recorded  upon  Form  No.  56.  At  the  end  of  each  year  a  copy  of 
this  record  is  made  and  a  check  obtained  by  inventory  of  the:  equipment. 
If  any  equipment  cannot  be  located,  a  satisfactory  explanation  must  be 
given  by  the  one  responsible  therefor.  By  this  means,  the  loss  of  small 
equipment  by  theft,  having  been  loaned  and  not  returned,  etc.,  can  be 
reduced  to  the  minimum.  Also  the  correct  description  of  any  piece  of 
equipment,  and  its  cost  can  be  quickly  ascertained  and  its  life  known. 

MATERIALS  AND  SUPPLIES  COSTS 

The  cost  of  each  item  of  materials  and  supplies  is  not  obtained  from 
the  Segregation  Sheets  but  from  the  invoices  of  material  purchased,  and 
from  the  expense  bills  of  freight  paid. 

The  procedure  and  records  involved  in  the  purchase,  transportation 
and  storage  of  materials  and  supplies  is  under  the  jurisdiction  of  the  Pur- 
chasing Department,  and  not  the  Accounting  Department.  However, 
the  costing  and  recording  of  the  materials  and  supplies  as  received  and  as 
disbursed  are  done  to  conform  with  the  requirements  of  the  Accounting 
and  Costing  Departments. 

Upon  the  receipt  of  each  invoice  by  the  Puchasing  Department,  or  by 
the  Accounting  Department,  if  there  is  no  Purchasing  Department,  and 
after  the  invoice  has  been  checked  against  the  order,  and  as  to  prices  and 
extensions,  the  items  appearing  on  the  invoice  are  listed  upon  a  Goods 
Received  Cost  Sheet  (Form  No.  57),  which,  together  with  the  invoice  and 
expense  bill  are  delivered  to  the  Storekeeper. 

The  Storekeeper  checks  the  quantity  of  materials  and  supplies  as 
received  against  the  invoice  and  ascertains  the  accurate  net  weight  of 
each  unit.  He  then  enters  the  invoice  and  freight  cost  for  each  item  on 
the  Goods  Received  Sheet.  If  the  handling  is  pro-rated  over  the  supplies 
as  received,  he  also  enters  the  proportional  cost  of  handling.  The  total 
cost  for  each  invoice  item  is  listed  in  the  "Total  Cost"  Column,  and  the 
unit  cost  entered  in  the  "Cost  Per  Unit"  Column  A  "Stock  Record" 
Card  (Form  No.  17)  or  sheet  is  made  out  for  each  item  giving  complete 
description  and  the  necessary  data  entered  thereon  under  the  heading  of 
"Stock  Received." 

The  stock  record  cards  or  sheets  are  kept  in  an  alphabetic  file  as  to 
stocks,  and  show  the  delivered  cost  of  each  item  of  materials  and  supplies 
purchased,  and  support  the  cost  of  each  stock  appearing  in  the  Cost 
Ledger  and  the  Materials  and  Supplies  Account  in  the  General  Ledger. 


246 


MINE  ACCOUNTING  AND  COST  PRINCIPLES 


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COMPILING  THE  COSTS  247 

As  supplies  are  issued  to  operations  they  are  written  off  of  the  supply  cards 
and  charge  tickets  made,  as  explained  under  Supplies  Issued. 

Accounts  Receivable  Costs. — Accounts  Receivable  originate  as  a 
result  of  purchases  made  or  work  or  jobs  performed  for  others.  If 
purchases  are  made  for  others,  the  cost  of  the  purchase  is  ascertained 
in  the  same  manner  as  the  cost  of  materials  and  supplies.  If  work  or 
jobs  are  performed  for  others  the  cost  is  ascertained  along  with  the 
operating  costs.  Usually  a  certain  percentage  is  added  to  cover  overhead 
and  bookkeeping  in  determining  Accounts  Receivable  Costs,  and  this 
percentage  is  credited  to  "Refunds  and  Discounts,  Operating  Sales," 
when  the  account  is  collected. 

Distributing  the  Cost  Sheets. — The  detail  unit  costs  for  each  period 
of  Sinking,  Drifting,  Raising,  Stoping,  etc.,  are  the  ones  that  are  com- 
piled first,  and  sufficient  copies  of  these  costs  are  furnished  the  proper 
department  heads  to  give  each  supervisor  a  copy. 

The  departmental  production  costs  and  departmental  unit  costs  are 
then  ascertained  and  a  copy  furnished  each  department  head. 

Copies  of  all  operating  costs  are  furnished  the  Manager  and  as  much 
of  the  operating  costs  as  are  desired  are  furnished  the  directors  and 
officers. 

Assembling  the  Cost  Sheets. — All  the  operating  costs  except  the 
Detail  Unit  Costs  of  Sub-departments  should  be  compiled  upon  sheets 
of  uniform  size,  and  sufficient  copies  made  to  supply  the  Manager, 
Officers  and  Directors.  These  cost  sheets  should  then  be  assembled, 
as  follows : 

First:    Total    Operating    Production  Costs,  and    Summary  of  Production  and 

Credits, 
Second:  Departmental  Production  Costs, 
Third:  Departmental  Unit  Costs, 
Fourth:  Repair  and  Replacement  Costs, 
Fifth:  Shop  and  Power  Costs, 
Sixth:  Construction  and  Equipment  Costs. 

After  the  cost  sheets  for  each  period  have  been  assembled  they  should 
be  combined  with  the  Operating  Statement  and  Schedules  and  the 
Profit  and  Loss  Statement,  and  enclosed  in  an  appropriate  binder  with 
an  index  to  allow  of  convenient  and  ready  reference  to  be  had  to  the 
results  of  any  one  period. 

There  should  accompany  the  Cost  Statements  to  the  Manager  and 
other  officers,  a  report  analyzing  the  Operating  Statement  and  Schedules 
and  the  profit  and  loss  for  the  period,  and  showing  the  fluctuation  in 
costs  and  the  reasons  therefor.  In  order  to  make  this  report  valuable, 
it  should  be  confined  to  matters  of  interest  to  the  Manager  and  Directors. 

Neither  the  Material  and  Supply  Costs  nor  the  Accounts  Receivable 
Costs  are  detailed  on  Cost  Sheets.     The  cost  of  each  item  of  materials 


248  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

and  supplies  is  scrutinized  by  the  Purchasing  Department  when  received 
from  the  Storekeeper,  who  also  compares  the  cost  with  previous  costs 
when  making  entries  on  stock  record  cards. 

STATISTICS 

In  order  to  analyze  properly  the  results  of  operations  in  costs,  effic- 
iency, etc.,  for  any  period  of  month  or  year,  it  is  necessary  to  compile 
monthly  and  yearly  statistic  of  costs,  efficiency,  earnings,  market  prices 
of  metals,  etc.  from  the  beginning  of  production  to  date.  The  statistics 
will  need  to  be  of  such  a  nature  as  to  meet  the  requirements  of  each 
business.  They  should  not  be  too  much  in  detail  but  more  of  a  general 
nature,  so  that  the  increases  and  decreases  from  month  to  month  and 
year  to  year  of  the  principal  factors  of  costs,  efficiency,  earnings,  etc. 
can  be  quickly  ascertained  and  the  tendency  towards  higher  or  lower 
levels  of  costs  or  earnings  can  readily  be  seen  and  explained. 

Without  the  proper  statistics  for  comparison  with  the  results  of  each 
period,  it  is  difficult  to  analyze  the  accounting  and  costing  data,  or  make 
a  proper  report  of  the  results  of  operations  for  any  one  period. 

ECONOMIC  ACCOUNTING 

After  the  accounting  and  costing  procedure  have  been  firmly  estab- 
lished and  accurate  costs  are  being  obtained,  attention  should  be  given 
to  determining  mine,  mill  and  smelter  losses  at  different  prices  of  metals. 
When  the  market  prices  of  metals  are  high  the  losses  are  much  greater 
than  when  metal  prices  are  low.  When  metals  are  high  the  problem 
is  to  obtain  the  best  possible  economic  recovery.  But  when  prices  are 
low,  it  is  sometimes  better  to  get  the  best  possible  cost  at  the  expense 
of  a  high  recovery.  At  times  the  gain  in  cost  is  more  than  offset  by  the 
increase  in  losses,  while  again  the  increase  in  cost  is  less  than  the  decrease 
in  losses.  The  most  economical  cost  is  not  always  the  lowest  cost, 
neither  is  the  highest  recovery  always  the  most  economical  one. 

In  some  instances  a  standard  of  mill  or  smelter  recovery  or  costs  is 
set  on  low  prices  of  metals  and  adhered  to  even  when  the  price  of  the 
product  has  doubled. 

The  solving  of  these  problems  requires  great  pains  and  a  close  working 
contact  between  the  accounting,  production  and  engineering  departments, 
and  is  a  field  of  activity  in  which  a  great  deal  of  intelligent  effort  can 
be  exercised  to  the  benefit  of  the  industry. 

FORMS 

Forms  are  a  necessary  means  of  obtaining  uniformity  in  accumu- 
lating accounting  and  cost  data,  and  should  be  so  constructed  as  to 
conduce  to  efficiency  and  the  obtaining  of  correct  data  without  dupli- 
cation. 


COMPILING  THE  COSTS  249 

Forms  improperly  drafted  and  ruled  are  always  a  source  of  annoyance 
and  result  in  waste  of  time  and  material,  and  the  compiling  of  data 
improperly. 

The  forms  illustrated  herein  are  only  the  more  important  ones  used 
in  operations.  They  have  been  arranged  in  the  order  in  which  they  are 
compiled  in  actual  operations  of  a  mining  business.  However,  as  the 
requirements  of  each  business  and  the  methods  of  mining  and  disposing 
of  the  products,  as  well  as  the  laws  of  each  state,  etc.,  are  not  uniform, 
it  is  impracticable  to  construct  forms  that  would  be  applicable  to  all 
classes  and  kinds  of  mining. 

The  forms  presented  are  simply  complimentary  to  the  text  and  for 
use  of  mines  of  the  nature  designated,  but  of  course,  can  be  used  as 
guides  in  drafting  forms  for  mining  operations  differing  in  methods  of 
operation  or  character  of  products. 

In  drafting  a  form  the  principal  consideration  is  to  obtain  the  ruling 
and  arrangement  that  will  allow  the  compiling  of  the  data  with  the  least 
effort,  and  that  will  give  all  the  information  desired  or  obtainable. 
However,  other  considerations  are  the  quality  of  the  paper,  the  size  of 
the  form  that  can  be  cut  with  the  least  waste,  and  that  the  columns 
are  neither  too  large  nor  too  small  to  accommodate  the  data  to  be  com- 
piled and  that  there  is  no  duplication  of  information  contained  on  other 
forms. 

A  careful  consideration  of  such  matters  will  result  in  large  savings 
in  purchase  of  supplies  as  well  as  in  labor  of  compiling. 

Some  of  the  forms  presented  are  of  great  value  as  they  have  been 
worked  out  after  careful  experimentation  and  much  thought  and  exper- 
ience and  will  result  in  saving  of  labor  and  time  and  the  obtaining  of 
facts  in  a  clear  concise  manner  by  anyone  having  use  for  them. 

Each  form  should  bear  a  heading  concisely  stating  for  what  purpose 
the  form  is  to  be  used.  Some  of  the  forms  herein  do  not  bear  the  proper 
headings,  but  have  been  presented  as  they  had  been  drawn. 

Some  of  the  forms  are  original,  while  others  are  more  or  less  standard 
in  mine  accounting  practise. 


CHAPTER  XXIV 

APPENDIX 

SIMPLE  SYSTEM  OF  MINE  ACCOUNTS 

Practically  all  of  the  mining  companies  expend  large  sums  in  explora- 
tion of  outside  properties  taken  under  option.  Such  work  is  generally 
done  on  a  small  scale  at  the  beginning  under  the  direction  of  a  superin- 
tendent who  also  attends  to  the  keeping  of  the  records  and  the  disbursing 
of  the  money.  Therefore,  a  simple  system  of  records  and  reports  must  be 
devised  that  can  be  easily  handled  by  the  one  in  charge  of  operations, 
and  that  will  furnish  the  information  necessary  to  allow  of  proper  book- 
keeping at  the  head  office. 

A  large  percentage  of  such  prospects  are  eventually  abandoned 
and  an  elaborate  and  expensive  system  of  accounts  is  not  desired.  To 
fill  the  need  of  such  operations,  a  simple  system  of  records  and  accounts 
must  be  devised  that  can  be  easily  handled  by  the  mine  superintendent 
at  the  beginning  of  operations,  and  later  by  a  timekeeper  and  supply 
clerk.     An  outline  of  such  a  system  is  given,  as  follows: 

Instructions  to  Superintendent  in  Charge  of  Operations,  Advis- 
ing of  Necessary  Reports  and  Records  to  be  made  at  the  Mine 

The  books  of  the  Mine  will  be  kept  in  the  General  Office.  However, 
you  will  keep  records,  make  distributions  and  reports,  as  follows : 

RECORD  AND  PAYMENT  OF  LABOR 

You  will  record  on  the  pay-roll  furnished  you  Form  No.  ,  the  record 
of  all  labor  performed  either  by  daily  wages,  or  by  contract,  and  issue 
cheques  in  favor  of  each  person  on  pay-roll  for  the  net  amount  due  each 
after  all  deductions  for  store,  etc.  have  been  made.  You  will  take  a 
signed  receipt,  Form  No.        ,  from  each  person  upon  delivery  of  cheque. 

At  the  end  of  each  month  after  you  have  closed  and  balanced  your  roll 
you  will  make  a  copy  of  the  monthly  pay-roll  and  forward  it  to  the 
General  Office. 

RECORD  AND  PAYMENT  OF  INVOICES  AND  BILLS 

You  will  pay  all  bills  of  expenses  and  invoices  of  material,  which  should 
be  submitted  to  you  in  duplicate.  As  soon  as  the  bills  have  been  checked 
and  found  correct,  you  will  make  vouchers  in  duplicate  for  each  bill  or 
invoice,  or  for  all  invoices  in  any  one  month  of  the  same  Company,  Firm 
or  Person.  You  will  mark  one  of  the  vouchers  original  and  the  other 
duplicate  and  attach  the  original  invoice  and  the  duplicate  invoice  to  the 
vouchers  and  will  enter  upon  the  voucher  record  Form  No.        ,  a  record  of 

250 


APPENDIX  251 

each  voucher  made.  After  the  vouchers  have  been  made  out  and  record- 
ed you  will  make  out  cheques  for  the  amount  of  each  voucher  and  upon 
delivering  the  cheque  to  the  proper  person  you  will  have  receipted  both  the 
original  and  duplicate  vouchers.  If  you  have  to  mail  the  vouchers  and 
cheques  you  will  notify  the  persons  to  receipt  and  return  both  the 
original  and  duplicate  vouchers. 

At  the  end  of  each  month  when  you  have  paid  all  of  the  bills  for  which 
you  have  received  invoices  you  will  total  the  voucher  record  for  that 
month  and  make  a  copy  of  it,  and  as  soon  as  you  receive  back  the  receipted 
vouchers  you  will  return  the  original  vouchers  with  a  copy  of  the  voucher 
record  to  the  General  Office  and  keep  your  original  record  and  the  dupli- 
cate vouchers. 

RECORD  OF  SUPPLIES  RECEIVED  AND  USED 

For  the  present  you  will  not  need  to  keep  any  record  of  supplies  as 
used,  but  will  charge  out  all  supplies  as  purchased  to  one  or  more  of  the 
four  general  accounts  named  hereafter.  To  make  it  convenient  for  you 
to  segregate  and  charge  out  the  supplies  as  purchased  you  should  group 
your  supplies  when  ordering  so  as  to  have  all  supplies  to  be  used  for  min- 
ing operations  together  and  all  supplies  for  construction  together,  also 
all  the  supplies  for  the  store,  etc.,  so  it  will  be  simple  for- you  to  make 
distribution  when  paying  the  bills. 

However,  for  your  convenience  in  keeping  a  record  of  supplies  used 
on  any  particular  job  at  the  mine,  you  are  furnished  with  a  number  of 
supply  sheets  Form  No. 

RECORD  OF  CHEQUES  ISSUED 

You  will  draw  all  cheques  upon  the  company,  using  the  cheque  fur- 
nished you,  Form  No.      ,  in  making  payment  for  all  labor  or  expense. 

You  will  report  each  day,  whenever  you  issue  a  cheque  either  for  labor 
or  for  bills  paid,  a  record  of  the  cheque  issued  on  Form  ,  to  the  General 
Office,  so  that  we  may  know  how  much  money  you  have  drawn  out  of 
your  account  and  to  enable  us  to  keep  sufficient  funds  in  your  account  to 
cover  your  cheques.     This  is  very  important  and  should  not  be  overlooked. 

PURCHASES 

In  making  purchases  ask  for  and  obtain  invoices  in  duplicate,  and  in 
ordering  your  supplies  arrange  your  orders  separately  for  supplies,  for 
construction  and  equipment,  for  mining,  for  store,  etc.  so  that  you  can 
easily  distribute  them  to  the  proper  accounts  when  paying  the  bills. 
You  will,  for  the  present,  not  keep  any  stock  account  of  supplies  for 
mining,  but  charge  out  all  supplies  as  purchased,  regardless  of  whether 
or  not  they  will  be  used  immediately  or  at  a  later  date. 


252  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

DISTRIBUTION  OF  EXPENSE 

Labor. — Each  day  you  will  keep  a  record  as  to  the  proper  distribution 
of  each  man's  time,  using  ordinary  small  time  books,  or  a  piece  of  paper, 
and  at  the  end  of  each  day  you  can  summarize  and  enter  these  distribu- 
tions upon  a  large  sheet  Form  No.  furnished  you.  The  total  amount  of 
the  money  entered  on  this  distribution  sheet  each  day  should  equal  the 
total  amount  of  your  pay-roll  for  each  day. 

Vouchers. — You  will  make  on  the  back  of  each  voucher  a  distribution 
of  the  expense  or  bills  of  material  covered  by  the  voucher  and  will  enter 
such  distribution  in  one  or  more  of  the  columns  on  the  voucher  record, 
Form  No.  ,  when  making  your  record  of  vouchers  issued.  If  you  wish  to 
keep  a  more  detailed  record  of  the  expense  as  paid,  or  of  the  materials  as 
they  are  used,  you  can  do  this  in  any  manner  most  convenient  to  yourself, 
and  it  would  be  well  for  you  to  keep  as  detailed  a  record  of  charges  to  the 
four  general  accounts  as  it  is  practicable  for  you  to  do. 

Supplies. — As  here -to-fore  stated  you  will  not  need  to  keep  any  record 
of  the  mining  supplies  as  used  unless  you  desire  to  do  so  but  will  charge 
out  all  supplies  to  one  of  the  four  accounts  upon  making  payment  for 
supplies  purchased.  However,  we  are  furnishing  you  with  supply  sheets 
which  you  may  use  to  keep  a  record  of  the  supplies  as  they  are  used  for 
each  job  or  piece  of  work  in  order  to  get  a  correct  cost  of  each  item  of  con- 
struction or  mine  operation.  All  supplies  that  are  not  for  immediate  use 
should  be  stored  under  lock  and  distributed  by  yourself  or  someone 
who  is  responsible. 

DISTRIBUTION  ACCOUNTS 

In  making  your  distribution  of  all  labor,  expense  or  supplies  to  the 
General  Office  you  need  not  segregate  the  labor  expense  or  supplies  any 
further  than  the  four  general  accounts,  as  follows : 

1.  Construction  and  Equipment. — To  this  you  will  charge  all  labor 
and  supplies  for  all  items  of  construction  such  as  roads,  houses,  horses 
and  burros,  and  all  large  equipment  other  than  small  tools,  keeping  your 
record  of  the  cost  of  each. 

2.  Mining  Operations. — To  this  will  be  charged  all  labor  and  supplies 
and  small  tools  used  in  mining,  keeping  for  your  record  a  cost  of  each 
department  of  expense,  such  as  Tunnel  No.  1,  Open  Cut  No.  2,  Drift  No. 
2,  Shaft  No.  1,  Cost  of  Distribution  of  Supplies,  if  there  should  be  need 
for  pack  animals  or  other  means  to  distribute  supplies  to  different  works, 
etc. 

3.  General  Expense. — To  this  you  will  charge  keep  of  horse,  if  any, 
expense  for  yourself,  office  expense,  and  all  incidental  expense  not  directly 
applicable  to  mining,  operations  or  to  construction  and  equipment, 
or  to  store. 


APPENDIX  253 

4.  Store.— If  you  run  a  store,  then  charge  all  expense  in  connection 
with  the  store  and  the  cost  of  all  goods  purchased  for  the  store  to  "Store" 
on  the  vouchers  in  payment  of  such.  Sales  from  store  should  be  made  at 
a  price  to  cover  invoice  and  freight  cost  plus  20  per  cent  or  whatever 
is  necessary  to  meet  competition  or  give  the  men  the  proper  service. 

CREDITS  TO  THE  STORE 

As  you  sell  merchandise  from  the  store  to  the  men  working  for  you, 
charge  to  each  individual  the  amount  of  each  purchase,  keeping  a  record 
on  store  charge  tickets  Form  ,  furnished  you,  and  each  day  you  will 
sort  these  tickets  and  total  them  for  each  person  and  enter  the  amount 
against  each  man's  time  on  the  pay-roll  so  that  you  will  know  at  all 
times  how  much  store  charge  there  is  against  each  man's  time  and  avoid 
anyone  over-buying  his  account. 

At  the  end  of  each  month  when  you  total  and  balance  the  monthly 
pay-roll  you  will  draw  a  cheque  for  the  total  amount  of  the  store  deduct- 
ions, making  the  cheque  in  favor  of  the  company  and  forward  it  to  the 
General  Office.  This  cheque  should  be  entered  on  the  roll  and  on  the 
cheque  register  the  same  as  any  pay-roll  cheque  and  extended  to  pay-roll 
column  in  cheque  register.  Pay-roll  Statement  for  this  cheque  should  be 
made  out  to  the  Company  and  sent  to  the  General  Office  with  the  cheque. 
All  pay-roll  deductions  should  be  handled  in  this  way  making  cheque  and 
statement  to  the  person  or  company  in  whose  favor  deduction  is  made. 

CASH  SALES  BY  STORE 

Cash  taken  in  over  the  counter  should  be  used  for  small  purchases 
for  store,  such  as  eggs,  etc.,  and  should  not  be  taken  into  your  General 
Cash  Account.  Do  not  report  these  cash  sales  to  the  General  Office. 
Treat  your  store  as  though  it  did  not  belong  to  the  mine  at  all,  and  keep  it 
separate. 

KITCHEN  AND  BOARDING  HOUSE 

If  you  run  a  kitchen  and  boarding  house  handle  all  expense  in  con- 
nection therewith  by  vouchers,  using  new  account  No.  5  for  Kitchen. 
Charges  made  by  store  for  supplies  to  kitchen  should  be  vouchered  and 
cheque  drawn  in  favor  of  the  company  and  sent  to  General  Office.  Make 
charge  to  Kitchen  Account  on  back  of  all  such  vouchers.  Supplies,  etc. 
for  kitchen  purchased  elsewhere  should  be  paid  by  voucher  direct. 
Supplies  sold  from  store  to  mine  operations  can  be  vouchered  in  same 
manner  as  to  Kitchen.  This  will  keep  your  store  account  clear  by 
charges  made  at  General  Office.  If  you  make  deductions  for  Board,  etc., 
on  pay-roll  handle  the  same  as  store  deductions  showing  "Kitchen 
Deduction"  on  pay-roll  statement.  If  you  get  cash  for  meals  you  can 
use  money  to  pay  for  small  supplies  for  kitchen. 


254  MINE  ACCOUNTING  AND  COST  PRINCIPLES 

CASH  ACCOUNT 

We  are  placing  with  the  Bank,  all  monies  subject  to  your  cheque, 
and  you  will  keep  a  record  of  the  amount  of  cheques  against  this  ac- 
count and  report  amount  of  each  cheque  drawn  against  the  account  so 
that  we  may  make  deposits  from  time  to  time  to  take  care  of  all  cheques 
drawn  by  you. 

We  will  notify  you  when  deposits  are  made  but  it  is  probable  that 
the  notification  may  not  reach  you  at  a  very  early  date.  Mark  all 
your  cheques" ." 

PERSONAL  CASH  ACCOUNT.     (CASH  ON  HAND) 

In  order  to  be  able  to  take  care  of  all  purchases  which  must  be  paid 
by  cash  you  will  draw  voucher  and  cheque  payable  to  yourself  as  agent. 
In  order  to  renew  this  cash  as  it  is  spent,  from  time  to  time,  make  out  a 
voucher  and  cheque  to  yourself  as  agent  for  the  amount  of  cash  you  have 
disbursed,  attaching  the  receipts  and  charge  these  items  to  their  respec- 
tive accounts  on  back  of  voucher,  and  cash  the  cheque.  This  will  put  all 
your  payments  through  your  voucher  register  or  pay-roll. 

In  case  of  part  payment  made  in  cash,  make  out  two  cheques  to  cover 
the  amount  of  voucher  and  have  the  person  endorse  the  check  to  you 
to  cover  the  amount  of  cash  paid.  These  cheques  may  be  re-endorsed 
and  cashed  by  you  as  you  need  the  money. 

Mail. — You  should  make  arrangements  for  your  reports  to  the 
General  Office  to  be  delivered  to  a  point  where  they  can  reach  us  at  the 
earliest  date  possible,  and  notify  us  immediately  where  to  address  your 
mail  so  as  to  get  the  best  delivery  to  you.  You  should  address  all  mail 
to  the  Company.    , 

Freight. — Arrangements  should  be  made  with,  a  responsible  freighter 
to  bring  out  your  supplies  as  ordered  for  the  store  and  mine.  You 
can  pro-rate  freight  charges  to  different  accounts  according  to  class  of 
supplies  freighted. 

General. — Any  information  that  you  may  wish  in  regard  to  the  records 
and  reports  not  covered  by  the  above,  will  be  furnished  upon  your  request. 
Also  we  may  issue  instructions  contrary  to  the  above  at  any  time  in 
the  future  should  we  see  fit  to  do  so,  or  we  may  add  to  the  above  instruc- 
tions. 

Note: 

A  simple  set  of  forms  to  accompany  the  above  instructions  can 
quickly  be  designed  to  meet  the  requirements  of  each  prospect. 


INDEX 


Accident  to  employes,  56 
Accounting,  administrative,  25,  153 

definition  of  terms,  5 

divisions,  13,  45 

operating,  44 

principles,  9,  10,  41,  150 

procedure,  13 

relationship  to  the  business,  2 

statement  for  the  treasurer,  144 
Accounts  receivable  schedule,  131 

payable  schedule,  131 
Administrative  accounts,  151 

cash  book,  21 

journal,  18 

ledger,  18 

voucher  record,  22 
Appendix,  250 

Appreciation  of  property,  158 
Assay  record,  94 
Assay  report,  88,  93 

B 

Balance  sheet,  174,  181 
Balance  sheet  schedules,  183 
Bills  audited,  60 

disbursement  account,  63 

distribution,  78 

record,  61 
Books  of  record,  26 
Business  of  mining,  1 
Business  reorganization,  34 


Cash,  book,  administrative,  21 

book,  operating,  116 

disbursements,  124,  165 

discounts  and  credits,  61 

petty  account,  126 

receipts,  115,  163 

reconcilement,  128,  166 

settlements,  schedule,  134 
Chart  of  accounts,  11,  42,  50,  85,  151,  190 
Chart  of  principles,  9,  41,  48,  150,  189 
Charges,  miscellaneous,  82 
Cheque  register,  125 
Cheques  unpaid,  128 
Condition  of  business,  statement  of,  23, 

36 
Cost  accounts,  190 
Cost  accounting,  192 

assets,  244 

comparative,  234 

compilations,  215 

daily  and  weekly,  229 

departmental  production,  223 

departmental  unit,  224 

detail  unit,  227 

division  production,  219 

factors,  210 

ledger,  201 

methods,  192 

principles,  189,  193 

prepaid,  242 

segregation  sheet,  201 

sheets,  247 

shops  and  power,  237 

total  and  net  production,  215 


Capital  16 

expense,  46 
for  prospecting,  16 
for  operating,  46 
receipts,  22,  48 
stock  journal,  19 
ledger,  20 
Capitalization,  16,  34 
Cash,  114,  131,  162 


255 


Daily  distribution  reports,  196,  198 
Delivery  of  by  products,  122 
Delivery  of  principal  production,  110 

of  sales,  110 
Departments  of  organization,  194 
Depreciation  of  equipment,  29,  72,  145 
Depletion  of  mine,  72 

reserve,  171 
Development  accounting,  33 


256 


INDEX 


Development,  determining  the,  28,  29,  31 

operations,  25,  27 

overhead,  208 

stage,  32 
Dividends,  168 

cash,  168 

capital,  170 

stock,  169 
Divisions  of  organization,  193 
Disbursements,  administrative,  155 

accrued,  70,  79,  155 

actual — direct,  52,  77,  155 
indirect,  68,  78 

capital,  22,  48 

chart  of,  50,  156 

deferred,  71,  81,  158 

distribution  of,  76,  158 

operating,  27,  51,  68 

summary  of,  68,  74,  82 

E 

Expense,  capital,  22 

cost,  195 

distribution  of,  195 

operating,  82 

summary,  144 
Economic  accounting,  248 


Forms,  13,  248 


F 


G 


General  accounting,  7 
accounts,  26 


Handling  of  supplies,  66 
Holding  company,  185 

I 

Income  statement,  or  account,  177 
Inventory,  adjustment  to  books,  141 

of  ore,  bullion,  etc,  142 
Invested  capital,  183 
Invoices  and  freight  bills,  60 

check  of,  61 


Labor,  52 

disbursement  account,  57 

distribution  of,  77 

distribution  summary,  200 

employment  of,  52 

reports,  53 
Ledger,  administrative,  18 

operating, 

capital  stock,  20 
Liquidation  of  the  business,  186 
Loss  on  sales,  111 

M 

Material  and  supply  stocks,  133 

inventory,  142 
Mine  production,  88 
Mining  methods,  12 
Monthly  distribution  sheets,  197,  199 

N 

Notes  receivable,  167 

O 

Operating  accounting,  26,  44 

accounts,  161 

accounting  department,  25 

capital,  46 

development,  47 

disbursements,  27,  51 

factors,  213 

organization,  25 

profit  and  loss,  138 

receipts,  27 

statement  and  schedules,  129,  137 
Orders,  57 

Ore  shipment  record,  92 
Ores  loaded,  89 

Ores  sampled  for  treatment,  91 
Organization  of  accounting  department, 

the  business,  4,  17,  25 
Organization  units,  193 
Overs  and  shorts  on  deliveries,  111 
Overhead,  194 

development,  208 

distribution  of,  209 
Oversales,  132 


Journal,  administrative,  18 
operating, 
capital  stock,  19 


Pay  rolls,  57 

Power  disbursement  account,  69 
distribution  of,  79,  207 


INDEX 


257 


Prepaid  expense,  80 

Principles  of  accounting,  9,  10,  41,  150 

Production,  84 

accounts,  84 

accounting  divisions,  45 

chart,  86 

factors,  210 

inventory,  84 

methods,  87 

of  mine,  87 

of  mill,  99 

of  smelter,  99 

of  refinery,  101 

of  by-products,  96 

of  secondary  products,  97 

record,  93,  95 
Production  and  refinery  deliveries,  102 
Production  and  sales  schedules,  132 
Profit  and  loss,  138,  144,  147,  177 
Promotion  of  business,  16 
Property  appreciation,  158 
Purchase  data,  133 
Purpose  of  accounting,  7 


Sales,  record,  106 
report,  119 
settlement  check,  119 

record,  120 
undelivered,  107 
Sampler's  record,  91 
Sampling  of  ores,  91 
Schedule  of  charges  and  credits,  12,  195 
Shops  disbursement  account,  68 

distribution  of,  79,  204 
Sold  metal  in  transit,  132 
Stages  of  operation,  14 
Statement  of  condition  of  business,  23, 

29,  46,  130,  154,  173 
Statistics,  248 
Supplies  issued,  63 
account,  67 
distribution  of,  77 
handling,  66 
record,  65 
report,  64 
Surplus,  179 
Suspense,  81,  208 


R 


Realized  appreciation,  174 
Receipts,  107 

administrative,  162 

capital,  17 

for  deliveries  of  production,  110 
by  products,  112 
secondary  production,  112 

miscellaneous,  113 

operating,  27 
Reconcilement  of  cash,  128 
Refinery  and  sales  deliveries,  132 
Reorganization  accounting,  35 
Reorganization  of  the  business,  34 
Repairs,  80,  205 
Replacements,  80,  206 
Requisition  for  supplies,  64 
Reserve  for  loss  on  sales,  111 
Revenue  accounts,  summary,  143 
Ruling  the  accounts,  147 

S 

Sales,  103 

contract,  104 

of  by-products,  107 

of  principal  product,  103 

of  secondary  products,  106 


Time,  214 

Time  statement,  56 

Treasurer's  accounts,  closing  of,  146 

opening  of,  184 
Tonnage  factors,  210 
Trial  balance,  129,  172 

U 

Underground  distribution  sheet,  197 

Understanding  of  accounting,  5 

Unexpired  insurance,  81 

Units  of  organization,  193 

Unpaid  cheques,  128 

Unsold  bullion  inventory,  132 


Valuation  of  mine,  34 
Vouchers,  61 
Voucher  Cheque,  63 
Voucher  record,  administrative,  22 
operating,  61 

W 

Weight  and  moisture  certificate,  90 
Working  factors,  11,  48,  153 


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